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- What do I need to consider before starting a nonprofit corporation?
- What do I need to do to start a nonprofit corporation in Oregon?
- How do I fill out my Articles of Incorporation Forms?
- What’s the difference between “members” and “supporters”?
- What is the difference between a Nonprofit Association and a Nonprofit Corporation?
- How can I connect with other nonprofit organizations?
- What are the alternatives to starting a nonprofit?
There are several issues to consider before you try to set up a new nonprofit: Structure Nonprofits differ significantly from partnerships or sole proprietorships:
- A nonprofit is controlled by a board of directors
- There is no private ownership or personal financial interest
- Success is more likely if a nonprofit is started by a group rather than an individual
- If you want sole control and decision-making power this is not a good choice
- You cannot sell a nonprofit
Funding Many people think it is relatively easy to obtain grant funding to support a nonprofit. This is not necessarily true.
- A nonprofit must have tax-exempt status from the Internal Revenue Service (IRS) to apply for grants or solicit tax-deductible contributions
- Competition for grants is high
- Funders prefer to fund established organizations with a track record
- New organizations should plan for several years of little to no funding unless a funder has already stepped forward
Community Support Nonprofits are often created by individuals with a strong personal vision. This can be a tremendous help but sometimes ends up a hindrance:
- Nonprofits are intended to fill a community need
- Most successful nonprofits are started by a group of people who share the vision AND the responsibility
- Individuals who want to start a nonprofit will be more successful if they can involve others in their vision
- The IRS looks for evidence of community support in evaluating of applications for tax-exempt status
Maintenance Since most people who start nonprofits are motivated by the desire to provide a particular program or service, they often fail to realize that there is a significant amount of administration required. Areas you must attend to if you hope to succeed, among others, are:
- Board support and development
- Fiscal management
- IRS and state reporting requirements
- Insurance and risk management
- Grant writing, fundraising, and grantor reporting requirements
- Employee and payroll management
It is critical to have enough active participants to share the responsibility for these tasks. Organizations that depend on only one or two people for these tasks have a high rate of failure.
Being a nonprofit corporation is not the same as being tax exempt. The nonprofit corporation designation is a matter of state law, while being tax exempt is a matter of federal law (and specifically the IRS). Below is a general step-by-step guide on how to file your Articles of Incorporation in Oregon. If you want to know more about obtaining tax-exempt status from the IRS, please refer to our FAQ section on Tax Issues and Form 990. Filing your Articles of Incorporation a. Go to the Oregon Secretary of State’s website. b. Click on the the link for “Business Search” and type in the name you want for your organization. This search will notify you if there is another Oregon corporation (nonprofit or for-profit) already using the name. If your search yields no results, you are free to use your chosen name. c. Return to the Secretary of State page and click on Business under Forms & Fees, then on Oregon Nonprofit Corporation, and finally on Articles of Incorporation. You may also just click here. d. You may fill out the form, print it, and send it to the Secretary of State, along with the $50 fee (plus $5 if you want a confirmation copy), or you may submit the form online. e. You may request a copy of the Articles of Incorporation (here.) NOTE: You will need to send a “confirmation copy” of the Articles of Incorporation along with your IRS tax-exempt status application. Things to keep in mind:
- Once you have incorporated your nonprofit, you are subject to Chapter 65 of the Oregon Revised Statutes (ORS 65). Please review the law here.
- Filing the Articles of Incorporation will reserve your organization's name.
- Articles of Incorporation may be filed by an attorney or any person involved in the organization that is incorporating.
- Most nonprofit corporations in Oregon must have a minimum of three board members.
- If you plan on applying for a bulk mail permit you need to include a short description of the organization’s purpose under Article 5, Optional Provisions. (For step-by-step instructions on filling out your Articles of Incorporation, see Question 3 in this section.)
- All nonprofits registered with the Secretary of State must file an Annual Report.
Applying for your Employer Identification Number (EIN) By Mail: Complete a SS-4, Application for Employer Identification Number and mail it to: Internal Revenue Service Center Attn: EIN Operation Cincinnati, OH 45999 By Fax: Send completed Form SS-4 to 859-669-5760 By Phone: Call 1-800-829-4933 between 7 a.m. and 10 p.m. local time (Alaska use PST). International applicants must call: 215-516-6999. Apply Online: Go to the IRS website and apply online. Developing your Bylaws Nonprofit corporations are required to have bylaws, a document that lays out the roles of board members, and outlines procedures that will govern your organization. Bylaws are usually the first document an organization's board of directors will approve and sign. There are no pre-printed bylaws or forms to fill out, but sample bylaws for Oregon for both membership and non-membership corporations can be found in the Oregon Nonprofit Corporation Handbook, available at local libraries or at the NAO Store. You don’t need to send your bylaws to the Secretary of State along with the Articles of Incorporation. You do need to send your bylaws to the IRS with your application for tax-exempt status and to the Department of Justice (see below for registration requirements). For questions about obtaining tax-exempt status, please refer to our FAQ section on Tax Issues and Form 990. NOTE: In recent years, the IRS has further scrutinized nonprofit activities around conflicts of interest and excess benefit transactions. If the IRS finds violations, the nonprofit organization may lose its tax-exempt status. To guard against this possibility, you should include good governance policies in your bylaws, covering conflicts of interest, non-discrimination, and other sound policies. Registering with the Department of Justice Charitable Activities Section If you incorporated your nonprofit as a Public Benefit Corporation you must also register with the Department of Justice's Charitable Activities Section (DOJ). If you registered as a mutual benefit or religious corporation, you do not have to register with the DOJ. You can download the registration form (Form RF-C) from the DOJ’s website. Oregon also requires your organization to file an annual report with the DOJ along with an annual fee. The annual reports must be received by the DOJ within four months and 15 days after the end of the organization's accounting period. For example, organizations with an accounting period that ends December 31 must file an annual report by May 15. You can contact the DOJ at 971-673-1880 to determine if your nonprofit will need to register and file annual reports. Applying for Tax-Exempt Status with the IRS Even after filing for incorporation, you are not tax exempt unless you take the additional step of applying for tax-exempt status with the IRS. For more information about applying for tax-exempt status, please refer to our FAQ section on Tax Issues and Form 990. Applying for City, County, and State Business Permits Depending on the location of your nonprofit corporation, you may be required to apply for a business license. Check with local and regional government agencies to see if you need to get a license.
What is a registered agent? (Article 2) The registered agent is the person who will be served with any legal papers regarding corporation business. The registered agent is not liable or required to respond, but should be someone with a physical address in Oregon who will be responsible for ensuring that the papers reach the appropriate person in the organization. What type of Corporation are we? (Article 5) The types of corporation are explained here. Will the Corporation have members? (Article 6) For a distinction between members and non-members, please refer to Question 4 of these FAQs. What goes under Distribution of Assets upon Dissolution? (Article 7) By law, upon dissolution (termination), a nonprofit corporation must donate any excess assets to another nonprofit or to the government. If you are planning on obtaining 501(c)(3) tax-exempt status, the IRS requires certain wording on Article 8. That wording is explained in the back of Form 112. (You can write “See attached” next to Article 8 and attach a document with the wording from the back of Form 112.) If you’re not planning on obtaining tax-exempt status, you may write: "Upon dissolution of the organization, assets shall be distributed to [name of charity you want to receive your excess assets]." What goes under optional provisions of the Articles of Incorporation? (Article 8) The most common additional optional provisions are: limitations on the personal liability of board members, limitations on the board’s powers, and a series of provisions related to membership corporations. If your nonprofit will seek federal tax-exempt status, you should include the wording required by the IRS under the optional provisions. (You may write “see attached” and enclose the following document along with your filing.) How many incorporators do we need? Only one incorporator is required, but you may have as many as you wish. All incorporators must sign Form 112. What is the liability of incorporators? The incorporators do not have any liability. Their responsibilities consist of filing the Articles of Incorporation, paying the fee, and calling the organizational (first) meeting after the filing has occurred. Do we have to list our board in the Articles of Incorporation? No. The Secretary of State does not require this information. The Articles of Incorporation require at least one incorporator. The incorporators may be the same persons as the directors of the board, but the functions are completely different. You will identify your board members by name when you register with the DOJ or request tax-exempt status from the IRS. Do we need a board? Yes. Unless you are establishing a church, all nonprofit corporations are required to have a board of directors with a minimum of three members. If you are setting up a church you may choose to have a “corporation sole” in which case there is no board and the organization is governed by its religious head and his/her successors. For more information about Boards, please refer to our FAQ section on Board Governance. How long does the process take? If you mail your Articles of Incorporation, it takes one to two weeks for the Secretary of State to process your application to create a nonprofit corporation. If you’re in a hurry you can fax the form or file in person. The Secretary of State's office is located at 255 Capitol St. NE, in Salem, Oregon. How much does it cost? The Articles of Incorporation filing fee is $50. If you need a confirmation copy, there is an additional $5 fee. If you are planning on obtaining tax-exempt status, you will need to send a confirmation copy to the IRS. What forms do we need to file to create a nonprofit? You must file the Articles of Incorporation (here). If you plan to apply for federal tax-exempt status, the IRS requires certain wording regarding your Optional Provisions (Form 112, Article 5) and your plans for Dissolution (Form 112, Article 8). See Question 3 above on How do I fill out my Articles of Incorporation Forms? Additional resources:
- Oregon Secretary of State
- Internal Revenue Service, Charitable Organizations
- Oregon Department of Justice
There is a great deal of confusion about the term “members.” First, “Members” does not refer to members of the board of directors; they are called “directors” or “board members.” When used in relationship to a nonprofit corporation, the legal meaning of “members” refers to a defined group of individuals who plays a role in the governance of the organization (i.e., by voting). Someone who contributes money or time to your organization is more likely a “supporter.” Nonprofits without members rely on the board of directors to make big decisions, while membership nonprofits must include all members in the decision-making process. Finally, nonprofit corporations with members must abide by a number of additional regulations that protect each member’s right to vote. See ORS 65 for more information.
Oregon nonprofits can be either unincorporated associations or corporations. If you do not file Articles of Incorporation with the Secretary of State, your organization will be an unincorporated association by default. An unincorporated association is defined as a group of people who come together for some purpose other than to do business, such as book clubs, small hobby groups, etc. The positive aspects of associations are:
- There are no registration or reporting requirements to the Oregon Secretary of State or DOJ
- There is greater flexibility in how the organization is run
- Change in membership doesn’t impact the existence of the organization
The negative aspects of associations are:
- There is no protection for the members. Everyone involved is equally and personally liable for the debts and lawsuits
- It is not possible to open a bank account because the association cannot obtain an Employer Identification Number (EIN). Anyone in the association can open a personal bank account on behalf of the association, but this can blur the line between personal and association assets
Unincorporated associations are often most appropriate for groups with smaller budgets. They are a poor choice if your organization will be engaging in any activities with potential financial risk or that might result in physical or emotional injuries. Corporations, on the other hand, provide a much higher degree of legal protection for the individuals involved. They are also subject to more reporting requirements and to ORS 65. The legal liability protection is often enough reason to choose this structure. NOTE: It is possible to apply for federal tax-exempt status as an unincorporated association, but if you should decide to incorporate later, you will have to re-apply, as the IRS considers the new corporation a different entity.
If you are looking for a specific organization type, the DOJ's Charities Database allows you to search for organizations by name, purpose, or location. If you are looking for an organization outside of Oregon or cannot find what you are looking for in the Charities Database, try GuideStar or the National Center for Charitable Statistics Database. Attending networking events and workshops is another great way to connect with other organizations. There are many organizations that offer networking opportunities across the state, including NAO, which provides peer networks for nonprofit leaders and managers in different regions. NAO's network sessions, as well as its workshops and trainings, are a great way to meet peers and discuss common issues. Check out NAO's Event Calendar to find out more about the training opportunities we offer, and visit our website to learn more about membership in NAO. Members receive discounts on our training events, among many other benefits.
You do not have to start a nonprofit corporation to make a difference in your community, the world, or the lives of others. You can make a huge impact by donating money or volunteering your time to a cause you feel passionate about. To find out about volunteer opportunities, you may check out Idealist.org, HandsOn Network, and VolunteerMatch. You can also contact an organization and suggest to start a project based on your skill set. If you'd like to go ahead and start your own project, but you don't have the money or the inclination to incorporate it and/or get tax exemption from the IRS, you could find a fiscal sponsor so that you can receive grants and tax-deductable donations. For more information, please visit our FAQs on Fiscal Sponsorship. Finally, you could also start an unincorporated association, which is less formal than a nonprofit corporation and is not required to register or report to the Oregon Secretary of State. For more information about associations, please refer to Question 5. above.