There are many different choices to make when you form a legal entity. Depending on your goal, you may want to form a non-profit. Hospitals, trade groups, small charities, social clubs, and grant-funded research projects often choose to form their entity as a non-profit for both the status recognition and the tax benefits. The legal formation of a Minnesota non-profit may be a fairly straightforward process from a layperson’s perspective, but turning in the paperwork is only the first step.
You also want to make sure your non-profit is properly governed. This means choosing a board of directors and setting up bylaws that will control how decisions are made for your organization. They should also include provisions that cover financial management, oversight, and conflicts of interest. A business attorney can help you draft the right by-laws for your project, explain the important details to your board, and help manage any issues when they arise.
Conflict of interest rules and procedures are particularly important to pay attention to. If you plan to apply with the IRS to collect tax-exempt donations, one key item they’re interested in is how your organization handles conflicts of interest. These occur when a board member is in a position to derive personal benefit from the actions of the organization. The best way to handle these conflicts is to be completely transparent with the rest of the board about any decisions and related information and then recuse yourself from voting on the decision. So, for example, if you want to purchase a building for the non-profit and then lease it to the non-profit at your cost, you disclose all the information you have about this possibility to the rest of the board members and then let them make a decision without you.
Once you’ve formed the Minnesota entity, you can choose to apply for tax exempt organization status with the IRS. This is a separate process and generally much more involved than the state paperwork. The most commonly recognized tax exemption is 501(c)(3), but there are several other options that you should explore to ensure you choose the exemption, and associated rules, most applicable to your organization.
For small organizations, those whose annual gross receipts are less than $5,000, the IRS has a simplified and expedited filing process. You can gather the necessary information and submit the application online without a lot of hassle. Larger organizations have to submit much more information, including a copy of their by-laws and financial information.
Once your non-profit is formed, you may want to engage in fundraising. An attorney can help you make sure your fundraising activities are in line with current state and Federal regulations. These can get complex, especially if your organization gets a grant or takes public funds to subsidize its operations prior to tax-exempt recognition by the government (commonly the mistake of do-it-yourselfers).
Not only does Virtus Law provide such services, its partners all serve on multiple boards of directors. If you’d like to discuss forming a non-profit, be sure to give Virtus Law Firm a call at 612.888.1000 or contact us by email at firstname.lastname@example.org. We can advise you every step of the way and ensure you’re making the great impact you dream of with all your legal paperwork straight.