MSN Law Office

Nonprofit Organizations
Columbus, Ohio

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Formation and Governance

PRACTICE AREAS

Nonprofit Organizations

Forming a nonprofit is definitely more complicated than starting an LLC or other for-profit business. So, what do you need to know if you’re considering this path?

How to Form a Nonprofit in Ohio?
In order to form a nonprofit in Ohio, you must:

  1. File Articles of Incorporation with the Ohio Secretary of State. While Ohio law does allow the formation of nonprofit LLCs, there is rarely a good reason for doing so. And it is much easier to apply for tax-exempt status as a nonprofit corporation than a nonprofit LLC. Be especially careful with the language you use describing the organization’s purpose. We have seen many organizations use overly broad language that raised red flags when they went to apply for tax-exempt status or funding. A typical charity that plans to apply for tax-exempt status under 501(c)(3) must be operated exclusively for charitable purposes. The purpose clause in the articles should not suggest that the organization might do anything other than charitable work.
  2. Obtain a Federal Employer Identification Number (FEIN), also known as a tax ID number.
  3. Draft bylaws for the new nonprofit corporation and recruit a board of directors. Ohio law requires at least three directors unless your nonprofit is a membership organization with fewer than three members.
  4. Adopt a conflict of interest policy. This policy addresses how the organization will make decisions when an officer or director finds themselves in a position in which they might stand to benefit financially from the organization’s dealings. For example, how will the organization consider a contract proposal from a board member’s company? Or, how will compensation decisions be made for the organization’s founder and executive director
  5. Apply for tax exempt status. Even though the nonprofit corporation is formed with the Secretary of State, only the IRS can grant tax exempt status. Which application your organization will be required to file will depend on which section of the Internal Revenue Code, you are using to seek tax exemption and the projected size (in terms of dollars raised and assets held) of your organization.
  6. Register with the Ohio Attorney General’s Charitable Division. In addition to filing with the Secretary of State and the IRS, nonprofits often have to register in each state (and some municipalities) if they plan to solicit money in that jurisdiction. The Ohio Attorney General expects every nonprofit organization to register with the Charitable Division and submit annual reports regarding the organization’s fundraising activities.

What goes in nonprofit bylaws?
A nonprofit organization’s bylaws (sometimes referred to as “regulations”) are the governing document for the nonprofit. Bylaws determine not only how decisions are made, but who makes those decisions. And because the nonprofit’s directors have fiduciary duties to the organization, both the nonprofit and the individual directors can find themselves in legal trouble if the organization isn’t following its bylaws. And that is why you should never just copy another organization’s bylaws, especially if you ignore the document when it comes to day-to-day operations.
Among other things, a nonprofit’s bylaws should address:

  • The organization’s purpose – Again, this should be consistent with the relevant tax-exempt purpose that the IRS requires for organizations of your type. If you plan to apply for tax-exempt status as a 501(c)(3) organization, then the nonprofit must be operated exclusively for charitable purposes.
  • Is the organization membership based? If so, the bylaws should establish requirements for membership and the extent to which the membership governs the organization.
  • The bylaws also establish the organization’s board of directors, their qualifications, terms, and term limits, etc.
  • Meetings – A board (and even a membership-based organization) has to have regular business meetings. How often? How will meetings be run? How will directors and members be notified?
  • Officers – Ohio law requires, at minimum, a president, secretary, and treasurer. Again, the bylaws should address their duties, qualifications, terms and term limits, etc.

Beyond these high-level items, each nonprofit will also have to consider the details of its operations, potential legal risks, and ways to solve problems and minimize disputes. Your bylaws will look very different if you have several committees and paid staff versus a smaller organization with three directors who are all volunteers.

Should you form a nonprofit?
With so many charities competing for our charitable dollars and providing similar services, many argue that you might not need to form yet another nonprofit organization.

​As you learn more about the legal requirements for forming a nonprofit in Ohio, applying for tax-exempt status with the IRS, maintaining your tax exempt status, and the various considerations that go into good nonprofit governance, you might be feeling a bit overwhelmed. Running a nonprofit is not easy, and the legal requirements may be more than you want to take on. If that’s you, but you still want to pursue your charitable project, then consider using fiscal sponsorship.

Fiscal sponsorship agreements can be a great way to get the administrative support you need to keep your project running well. They can also open up funding opportunities that you wouldn’t otherwise be able to apply for without your own tax-exempt status.

Legal Audit Checklist

As a small business or non-profit organization, you probably can't afford to have an attorney on your payroll full-time.

But you still need to know what legal risks you’re potentially facing, you still need to avoid expensive surprises, you really need everything to work within your budget, and you still need to have your legal questions answered (including the questions you didn’t even know to ask).