Starting a Nonprofit Organization (NPO) takes a lot of work and dedication. Before the actual purpose of the Organization can be started, a lot of paperwork needs to be filled out and filed with the State of Minnesota and the Internal Revenue Service. Below are basic guidelines for starting an NPO in Minnesota. The Minnesota Nonprofit Corporation Act governs nonprofits in the state of Minnesota. Minn. Stat. ch 317A. Nonprofits outside Minnesota should check with their state’s regulations bodies.

Develop Board of Directors

First you need to find other people who believe in what the NPO’s purpose is and are willing to serve. This first group, known as the board of directors, will be responsible for writing the articles of incorporation and the initial by-laws. It is the job of the board of directors to ensure that the organization’s actions follow its mission and purpose. They will also be in charge of fundraising, creating the organization’s policies, and hiring staff.

Create a Name

Next, develop a name for the NPO. The NPO will want to make sure the name is unique and helps identify its purpose or distinguish it from other nonprofit organizations. The Minnesota Secretary of State’s (MN SOS) Office website will have a list of names that are already reserved. There, you can also reserve the chosen name.

Write Articles of Incorporation

Next, write the articles of incorporation (Articles). These are written to minimize the financial risks of the board of directors and provide the information necessary to file for tax-exempt status if the board decides to do so. The Articles only need to be submitted once, along with a $70 filing fee. Sending a $35 re-filing fee to the Minnesota SOS can amend the Articles.

If the NPO decides to become a 501(c)(3) entity, there are additional language requirements that need to be written in the Articles before filing for the tax-exempt status from the Internal Revenue Service (IRS). There are templates and examples of the language required by the IRS at:

www.minnesotanonprofits.org/nonprofitresources/start-a-nonprofit/samplearticles.pdf

If the NPO decides not to apply for tax-exempt status, it can fill out a form online on the Secretary of State’s Office website at:

www.sos.state.mn.us/media/1829/nonprofitarticlesofincorporation.pdf

The MN SOS only requires the Articles to include the name of the NPO, the name and address of the NPO’s registered agent, a statement that it complies with the applicable chapter of the Minnesota statutes, and the incorporator’s name, address and signature.

Write By-Laws

The next step is to write the NPO’s By-laws. By-laws are the rules that the NPO will follow in deciding who can be a member of the NPO (including both board of directors and/or voting members), how many members there will be, and what their responsibilities will include. The by-laws also lay out what a quorum will be, when meetings will take place, who will be hired as the executive director, the cost of dues, if there are voting members, and all other aspects of duties, elections, etc. of the directors or members.

Hold First Meeting

Next, the NPO should hold the first board of directors/membership meeting to approve the Articles and by-laws, decide the fiscal year the NPO will follow, and approve the initial transactions needed to get the NPO set up, such as filing the Articles, opening a bank account, etc.

Obtain and Maintain Tax-Exempt Status

Before applying for the 501(c)(3), the NPO needs to apply for a Federal and State tax employee identification number (EIN), even if there are no employees. Once the Federal EIN is received, the NPO can apply for tax-exempt status by filing the 1023 or 1023EZ form, whichever is applicable to the NPO. The NPO will be exempt from Minnesota state income if it is granted the Federal tax-exempt status. The NPO can go to the Minnesota State Revenue website to see if they are eligible to be exempt from property and sales tax.

The NPO may also need to register as a charity with the state Attorney General’s office, depending on the size of the NPO and its activities.

To maintain its status, the NPO will need to file an online annual registration with the MN SOS office. Failure to register by December 31st each year results in the dissolution of the NPO, but it can be reinstated for a $25 fee.

As well as the annual renewal of registration, the NPO will also need to file an annual Form 990, or similar, to the IRS, depending on the size of the NPO. A Charitable Organization’s Annual Report Form will also need to be filed annually to the Minnesota Attorney General’s Office.

Set up a filing system to keep all important records of the NPO, as some information needs to be kept permanently per the IRS retention regulations.

Starting an NPO can be a rewarding but challenging endeavor. By researching and following the guidelines found at the MN SOS and MN Council of NonProfits websites, the reward can be much greater than the challenges.

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Claudia Weinberger
I joined Hawkins Ash CPAs in 2013 and, as a senior audit associate in the firm’s La Crosse office, I work with the audit team to perform audits of municipalities and nonprofits.

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