How to Establish a Nonprofit Corporation in Delaware

Understanding the Two Types of Delaware Nonprofit Corporations

Your first decision is to determine the type of nonprofit corporation you wish to establish in Delaware. The state offers two options: an exempt or a nonstock corporation.

• Exempt Corporation: If your organization has a charitable, religious, civic, or other nonprofit mission, you may qualify as an exempt corporation. This designation comes with advantages such as exemption from state or local property taxes, business fees, and corporate taxes.
• Nonstock Corporation: If your organization doesn't meet all the IRS criteria for exempt status, you can opt for a nonstock corporation. Unlike exempt corporations, nonstock corporations do not issue shares of stock or have shareholders. Instead, they have members and a board of directors and may be subject to Delaware's annual franchise tax.

Steps:

Step 1: Appoint Initial Directors

‍Under Delaware law, every nonprofit corporation must have at least one director on its board. These directors are responsible for overseeing the organization's activities. As the founder, you may also serve as a director on the board.

Step 2: Choose a Unique Name

‍Select a name that is easy to pronounce, spell, and remember. Delaware has specific rules for naming nonprofit corporations. Ensure that your chosen name is distinct and not in use by another organization.

Your nonprofit's name must also include one of the following designators, either spelled out or abbreviated: Association, Company, Corporation, Club, Foundation, Fund, Incorporated, Institute, Society, Union, Syndicate, Limited. Avoid using "Bank," "University," or "Trust" unless your activities directly relate to those areas. You can check name availability on Delaware's website and reserve it for 120 days for a $75 fee.

Step 3: Designate a Delaware Registered Agent

‍Every nonprofit in Delaware must have a registered a gent with a physical presence in the state. This agent is responsible for receiving legal documents on behalf of your nonprofit during regular business hours and forwarding them to the appropriate parties. Using a service company is advisable to ensure constant availability during business hours.

Step 4: File a Certificate of Incorporation with Delaware

‍For an exempt corporation, file a Delaware Certificate of Incorporation. Include your nonprofit's name, purpose, and the name and address of your registered agent. To qualify for nonprofit status, you should mention the IRS subsection under which you're applying. Specific language is required in the Certificate of Incorporation, which can be found on the IRS website. The filing fee is $90, payable by Visa, Mastercard, American Express, Discover, or electronic check. You can also fax the form with payment information or send it by mail to the Division of Corporations in Dover, DE.

Step 5: Develop Corporate Bylaws

‍Create bylaws that establish the rules for your nonprofit's operation. Bylaws cover essential topics such as the organization's name, mission, goals, policies, and procedures. While you don't need to file them with the state, keeping them on hand and adhering to them is essential.

Step 6: Convene an Organizational Meeting for the Board of Directors

‍The initial board meeting is crucial for your nonprofit's smooth start. During this meeting, you may appoint directors and officers, set up minute books, authorize bank account openings, and review your bylaws. Organizing everything in a binder can help keep records accessible.

Step 7: Establish a Record-Keeping System

‍Decide how you'll maintain your nonprofit's records. Accurate recordkeeping of income and expenses is essential for success. You can opt for a manual record-keeping system using a binder or a more sophisticated computerized solution like a cloud service.

Step 8: Obtain Tax ID Numbers

‍To open a bank account or hire staff, you'll need an Employer Identification Number (EIN) from the IRS. After obtaining an EIN, register your nonprofit with the Delaware Division of Revenue through their website.

Step 9: Apply for Licenses and Permits

‍Determine the necessary licenses and permits for your nonprofit's operations. Requirements vary at local, state, and federal levels, and by industry.

Step 10: Seek Tax-Exempt Status

‍To qualify for federal tax-exempt status under section 501(c)(3), complete Form 1023 and submit it online at www.pay.gov. There's a $600 fee for this application, or you can opt for the shorter Form 1023-EZ, which costs $275. Delaware does not require a separate state-level tax-exempt filing; recognition by the IRS exempts your nonprofit from Delaware's corporate income tax.

Step 11: Register as a Charity in Other States

‍While Delaware doesn't require registration for fundraising, if you plan to raise funds in other states, you may need to register your nonprofit as a charity in those states.

Step 12: Secure Necessary Insurance

‍Consider the insurance needs of your nonprofit, such as workers' compensation if you have employees. Consult with an experienced insurance agent to determine the appropriate coverage for your industry.

Step 13: Establish a Bank Account

‍Setting up a dedicated bank account helps manage your nonprofit corporation's finances separately from personal finances.

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Ready to Start Your Journey?

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Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. Seek the counsel of a licensed professional for specific questions related to these topics.