Forming a Not for Profit


I have had the privilege of serving on the board of directors of a high school athletics organization in Atlanta over the last year. In connection with my involvement I have performed a fair amount of research into the formation of not for profit entities from both a legal and tax perspective (As a side note, I have found that the involvement of attorneys and CPAs on your board or in an advisory role can provide invaluable insight and guidance to the organization on a number of matters while effectively eliminating the cost normally associated with such services). I thought this information would be helpful to others involved in similar situations. I am not an attorney and the the specific circumstances of your entity may not be incorporated here so take this as a helpful frame work and not the gospel.

Resources:

  • Nonprofit.com: This website provides high level information on the pros and cons of a not for profit corporation. Link
  • The Georgia Center for Non-Profits: Summary of the steps in the State of GA. Link
  • Secretary of State: This document provides the requirements associated with forming a Tax Exempt Corporation in the State of Georgia.  Link
  • LegalZoom.com: This website provides documentation such as articles of incorporation, by laws, etc. that must be completed and submitted to the Secretary of State. Link

Potential Benefits:

1. Tax free revenues (i.e. this cements the organization as a tax free entity and removes any grey area associated with the current structure that could be challenged).

2. Provides an expanded avenue through which the entity can acquire funding (i.e. the tax deductible donations from supporters)

3. Certain liability limitations

Potential Downsides:

1. Compensation of Board Member – This may be a non issue if members are entirely voluntary.

2. Costs

  • $35 registration fee with the State of GA Link
  • $100 filing fee with the State of GA
  • Preparation of financial statements to accompany State registration form
  • $40 Notice of Intent to Incorporate newspaper publication fee
  • Legal Zoom package is $139 Legal Zoom

3. Time

  • Preparation of information required for the the registration documents
  • Preparation of the annual informational returns
  • Maintenance of accounting, donation, and financial statement records would be necessary

4. Compliance

  • Directors must sign registration form for State of GA, submit to a background investigation, and provide a 10 year employment history. This is a one time requirement and would not be replicated on a go forward basis except as required for amendments.
  • Annual Information Return Filing (Form 990 EZ due 15th of fifth month after year-end). This should be a fairly simple exercise assuming we are diligent in the maintenance of records, however, will be required each year. Best Practices AICPA Article
  • Maintenance of appropriate documentation in place such that amounts paid to coaches, administrative staff, etc. is on a contract basis and would not be construed as wages requiring tax witholdings, employer tax returns filed, etc.
  • Donee Informational Return (Potentially would be required to file depending on types of contributions received i.e. if we were to receive goods, automobiles, stock, etc.).
  • Disclosure Statement: A written disclosure statement to each donor of a quid pro quo contribution over $75 must be supplied to the donor. Primarily this will require the maintenance of records as well as supplying donors on a timely basis the appropriate statements. Upon development of a basic template this should be a fairly simple task.
  • Board Minutes. There will need to be a record maintained which reflects that meetings that occur. This should not be overly burdensome and could largely be accomplished by the compilation of meeting notes by one member of the Board in the format of minutes.
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