Starting a nonprofit, Part 2

By Cynthia Sexton

After a new nonprofit has selected its board of directors, its initial task is to compose two organizational documents — the articles of incorporation and bylaws.

The certification of filing required with the agency appropriate in your state usually includes submitting articles of incorporation.

The articles will be submitted later in the startup process to the Internal Revenue Service with Form 1023 Application for Recognition of Exemption.

Because each state’s incorporation requirements differ, you must obtain the specific requirements from the state office of the secretary of state, or your state’s equivalent agency.

The National Council of Nonprofit Associations provides links to state organizations that provide regional assistance, as well as sample articles and bylaws.

The articles of incorporation set the basic terms used by the corporation, and include its purpose, the composition of its board of directors, and the rules by which the organization will govern itself.

Where articles of incorporation serve like an organization’s “declaration of independence,” the bylaws act as its constitution and laws.

Bylaws help define the organization’s governance structure, including the role, size and compensation of the board; term lengths and limits for board members; frequency of meetings; list of officers and their duties;  committees and their functions; definition of a quorum; and requirements for meeting notices and amendments to the bylaws.

While bylaws are not required by the IRS, a minimum explanation of how your officers, directors or trustees are selected must be submitted with Form 1023.

Both the articles of incorporation and bylaws should be reviewed by an attorney prior to the first official meeting of the board of directors.

At the board’s first meeting, the directors should accept their election as directors, adopt the articles of incorporation and bylaws, and elect officers.

They will then authorize the treasurer to develop and present a budget at the next meeting and file the required state documents for incorporation.

An IRS Form SS-4 may also be filed by telephone to obtain a federal tax identification number. Instructions can be downloaded from the IRS website.

The corporate secretary should also create a minutes book in which official documents such as articles, bylaws and minutes will be kept.

It is important that this record be established at the first meeting and faithfully maintained by the secretary.

Other stories in series:

Starting a nonprofit, Part 1
Starting a nonprofit, Part 3

Cynthia Sexton is finance director of the A.J. Fletcher Foundation, which publishes the Philanthropy Journal.

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