How to Start a Nonprofit in Delaware - Form a Delaware Non-profit and Starting a Delaware Nonprofit From Scratch
How to Start a Nonprofit in Delaware - Form a Delaware Non-profit and Starting a Delaware Nonprofit From Scratch
Starting a Delaware non-profit corporation shares many similarities with the process in other states, such as Ohio, which we've previously explored. However, Delaware has its own unique set of state-specific requirements, and we'll guide you through these in a clear, step-by-step manner below so that by the end of this article, you'll have everything you need to get your very own legal nonprofit up and going in the state of Delaware.
Fortunately, Delaware is known for its straightforward non-profit setup process. One of the most appealing aspects is its affordability. You can establish your non-profit here with minimal expense, typically under $1000, including the fees for your IRS non-tax status application. This makes Delaware an excellent choice for those of you looking to start your non-profit journey efficiently and cost-effectively.
Understanding Nonprofits in Delaware
In Delaware, a nonprofit is essentially any charitable organization that operates for the public good rather than for profits like a regular Delaware corporation. Unlike businesses that aim to maximize profits for their owners or shareholders, nonprofits focus on achieving goals or mission statements that benefit the community, environment, or specific groups whether locally or on a global scale.
Delaware boasts a large community of nonprofits operating within the state. According to Share Delaware, there are 1,349 public charities found in the IRS master file of registered 501c3 organizations with combined assets of more than 11.8 billion dollars. These charities also employee 82,396 people within the state which amounts to more than 17% of all of Delaware’s citizens.
The most prevalent types of nonprofit registration in Delaware include:
- Charitable Organizations: These are the most recognized form of nonprofits. They work towards relieving poverty, advancing education, supporting health, and other causes that serve public interests.
- Educational Nonprofits: From private schools to research institutions, these organizations focus on educational advancement and learning opportunities.
- Religious Entities: These include churches, synagogues, and other religious congregations that engage in spiritual development and community services.
- Others: Delaware also recognizes other types of corporations that register as nonprofits in the arts, environmental conservation, and social services sectors.
Each type of charitable corporation plays a role in addressing specific needs within the community or abroad and are important revenue sources for the sate. And with such a large nonprofit sector operating in the state of Delaware, it makes it a great place to start a nonprofit no matter what your nonprofit startup is focusing on.
Benefits of Starting a Nonprofit in Delaware
A very interesting note on the number of charities operating in Delaware is that less than 12% of nonprofits registered actually operate in the state! So you’d think there are definitely some benefits to choosing Delaware to start a nonprofit nonprofit. But honestly, that’s not the case at all. Choosing to setup your organization in Delaware over other states really does not give you any significant advantages like there are if you were to start a for-profit corporation in the state.
Due to the IRS requirements pertaining to nonprofits, the flexibility of governance allowed by Delaware doesn't apply if you're seeking 501(c)(3) status. And if you’re going to operate outside the state, you may actually need to deal with more red tape and expenses necessary in obtaining a Certificate of Authority to operate in other states and adhering to charitable solicitations registration requirements in those states.
In fact, the only real benefit of incorporation in Delaware is if your state focused and seeking things like grant funding and local community contributions. Otherwise, it would be more beneficial for you to incorporate in the state that you plan to have the most impact in.
Steps for Starting a Nonprofit Organization in Delaware
Research and Planning - The Foundation to Form and Start Your Nonprofit in Delaware
As is true with starting any nonprofit organization, you need to be extremely clear on what your mission is and what goals you plan to achieve by starting and running your organization long term.
By starting with actual short term goals and a clear and concise idea of the organization’s long-term aspirations, you’ll know if your startup is even viable, or if it’ll have the impact you envision it to have now and into the future.
This all begins with a needs assessment to see if your community's needs are being met or if your nonprofit organization addresses a real gap. This could involve surveys, community meetings, or analyzing existing data for charities similar to the one you plan on creating.
Once you’ve identified ways you can positively impact your community, the next step is to strategically develop a road map for how your organization will achieve its goals or mission. Think of things like demographics, potential services you will include, and what the required resources will be in order to make this all a reality.
Choose a Name: Name Registration in the State of Delaware
Choosing a name for your charity is actually more important than you think. Think of book titles, what titles do you reach for? Which ones sound interesting, helpful or unique. You want to stand out from all of the other charities as well as create a name that is short, memorable and clearly conveys what your organization is all about.
Naming your charity Bob’s Game doesn’t invoke things like trust or transparency, and you’d have no clue what the organization actually did. But a name like Bob’s Bobcat Welfare Center would be very different, and right from the start people would understand what your nonprofit organization was about. And yes, not the best example, but hopefully it clearly demonstrates the importance of naming your nonprofit.
Once you have decided on a great name, you’re going to need to be sure the name isn’t already registered in the state of Delaware through their Delaware Division of Corporations’ website to check your name availability. Once you know no other person or corporation hasn’t registered your name, you can move on to the next step.
Appoint a Board of Directors: Building Your Team
Appointing your Board of Directors is one of the most important aspects of starting your nonprofit. Your Board will be the group of people who guide and govern your nonprofit corporation both short term and in the years to come, so choosing wisely individuals who have the same views that align with what your mission is all about will definitely benefit all involved.
The reason you need to create your board at this stage is you must have a board to legally apply for your Certificate of Incorporation with the Delaware Division of Corporations. Also your board will need to vote on and approve things like your bylaws and other legal requirements before you can apply to the IRS for nonprofit tax status.
And although the IRS does not require a specific number of board members, the state of Delaware does. You must have at least one board member according to their rules on incorporating a business as a Delaware corporation, this holds true for nonprofits as well.
But that doesn’t mean you should only include one board member for your nonprofit. Rather, your board should be composed of a minimum of three individuals that align with your vision both long and short term for your nonprofit. And there are a few reasons for this. First, three people will mean there is never a tie when voting on a topic or your nonprofit requirements. Two, with a minimum of three people, you have the chance to include individuals with specialized skills that can further your non-profit corporations effectiveness including adding an attorney or certified accountant to your board.
And three, although there isn’t a mandated number of members as far as the IRS is concerned when it comes to nonprofit formation, they do however make this statement, ‘The Internal Revenue Service encourages an active and engaged board believing that it is important to the success of a charity and to its compliance with applicable tax law requirements.’
They go further stating, ‘Irrespective of size, a governing board should include independent members and should not be dominated by employees or others who are not, by their very nature, independent individuals because of family or business relationships. The Internal Revenue Service reviews the board composition of charities to determine whether the board represents a broad public interest, and to identify the potential for insider transactions that could result in misuse of charitable assets.’
So if you’re a small charitable organization trying to start out, it’s our recommendation that you start your nonprofit with a minimum of three board members. Define clear roles for each board member, including a Chairperson, Secretary, and Treasurer, each with distinct duties. Then as your charity grows in size and complexity, you can add more members as they’re needed as the number of members isn’t set in stone.
Appoint and 'Register' your Registered Agent
In the next step when you file your Certificate of Incorporation in order to start a nonprofit, you will need to include your registered agent along with their Delaware address and phone number.
You can be your nonprofit’s registered agent as long as you fulfill the requirements set forth by the state including having a physical address in Delaware (not a P.O. Box), a phone number, and that you agree to be available to accept any and all legal documents for your nonprofit during regular business hours.
A registered agent is simply an individual registered with the state of Delaware and agrees to be available during business hours to receive legal documents on your company’s behalf. They will often need to sign for registered mail for your non profit organization and will need to show Delaware ID. If you aren’t physically within the state of Delaware, you can opt to hire a professional registered agent service that can fulfill all the requirements for your corporation.
If you are doing this yourself there is no fee and this step can be done when you go to apply for your Certificate of Incorporation either in person or online. If you choose to use an agent or business to apply on your behalf, they’ll typically charge an annual fee.
The cost of using a service can vary significantly depending on the provider and the range of services offered. Fees can range from as low as around $50 to several hundred dollars per year. But this must be done before you can proceed any further with setting up your Delaware nonprofit organization.
File the Certificate of Incorporation: Incorporate Your Delaware Non-profit
Now that you have a lot of the leg work out of the way, it’s finally time to incorporate and make your nonprofit a legal entity in the state of Delaware.
Your Certificate of Incorporation is what's used to form a nonprofit in Delaware and is filed with the Delaware Division of Corporations, which operates under the jurisdiction of the Delaware Secretary of State's office. The Delaware Division of Corporations is the specific entity responsible for handling business filings, including the incorporation of nonprofits.and issue your nonprofit articles.
The Certificate of Incorporation for Exempt Corporation must include specific information when forming a nonprofit such as the name of your nonprofit corporation, its purpose, the name and address of the registered agent, the names of the incorporators, and a statement regarding the nonprofit nature of the corporation.
Nonprofit corporations can download the forms from here and fill them out on your own under an hour. You will then be required to pay the fees involved which total $139.00, ($89+$50 for certified copy). All the information you need to submit your forms will be included on the forms you download from their website.
Apply for an EIN (Employer Identification Number): Getting Your Tax ID for Non-profit Corporations
This is most definitely the easiest of all the steps listed, but it’s still a very important one. You can think of your nonprofit’s EIN (Employer Identification Number) as its own social security number. It’s how the IRS will track all of your records and is necessary before you submit anything to the IRS. It’s also the number your future donors will need to get their tax exempt donation receipt.
Luckily all you need to do is go here to their website and fill out Form SS-4 which is very short and should only take a few minutes to fill out completely. As soon as you submit your form you automatically be issued your EIN. Make sure you write down the number and download the EIN confirmation notice they give you. And the best part, this part of the process is also completely free!
Bylaws and Conflict of Interest Policy for Starting Your 501(c)(3) Non-profit Corporation
When seeking 501(c)(3) tax-exempt status from the U.S. Internal Revenue Service (IRS), it's crucial to create and formally adopt your nonprofit bylaws and a conflict of interest policy through board approval. These documents are key to demonstrating your charity's commitment to regulatory compliance and ethical governance which can significantly influence the IRS’s decision on your tax-exempt status application.
Bylaws Overview: Bylaws serve as the foundational guidelines for your nonprofit's operations. They outline your organization's structure, including the composition and election process of the board of directors and officers. Bylaws also detail various operational and administrative procedures. The IRS reviews your bylaws to ensure your organization's activities align with the standards set for 501(c)(3) organizations.
Crafting a Conflict of Interest Policy: This policy is essential to prevent potential ethical breaches within your nonprofit. It aims to stop board members, officers, and key employees from exploiting their positions for personal gain, thereby safeguarding the integrity of your organization's mission. A comprehensive conflict of interest policy, once approved, demonstrates to the IRS that your organization proactively addresses and manages ethical risks.
For a successful 501(c)(3) application, ensure these documents are not only well-prepared but also formally adopted by your Board of Directors during their initial meeting. This demonstrates your commitment to responsible governance and increases the likelihood of achieving tax-exempt status.
Conducting the First Board Meeting for a Delaware Nonprofit
The very first meeting of your nonprofit's Board of Directors is a pivotal event in the establishment of your organization. This first gathering, often called the organizational meeting of the board, is where foundational decisions are made, setting the stage for your charity's application process and future operations.
Key Actions to Take During the Initial Board Meeting:
- Approval of Bylaws: Your bylaws, or the rules your nonprofit will adhere to when it comes to any decision making, need formal approval from the board. This step is mandatory and your bylaws are not legal until they are voted on.
- Adoption of Conflict of Interest Policy: As a newer requirement for your nonprofit status with the IRS, your conflict of interest policy is meant to establish and maintain ethical standards and integrity within your organization, especially among board members, officers, and key employees. This needs to be included with your 501(c) application.
- Election of Directors: In order to form a nonprofit you must have a board of directors. This is required by both the IRS and Delaware state laws regarding nonprofits. And although by state law the required number is only one director, the IRS makes statements that a single director is not the best way to go, but rather a large enough board to insure your nonproft can make unbiased decisions.
- Appointment of Officers: Officers, such as the President, Secretary, and Treasurer should all be elected during your first board meeting. Each title's responsibilities should also be clearly laid out and again, each appointment must be voted on and have the board's approval.
- Documenting your Meeting: In order to demonstrate your organization is adhering to all the rules and regulations set forth by the IRS and the state of Delaware, it's important to carefully document everything that happens during the meeting. These minutes act as an official record of your decisions and are important not only for staying compliant, but they're also a required part of your application for tax-exempt status.
The initial board meeting of your nonprofit is an important step in creating a legal entity and the decisions you make here will shape how your nonprofits future looks, so take this initial meeting seriously and be sure to include all of our above points.
Navigating Federal 501(c) Nonprofit Requirements for Tax Exemption for Nonprofit Corporations
Obtaining federal 501(c) tax exemption status for your nonprofit is why you’ve done all the necessary steps above, it’s the holy grail when it comes to your non-profit. This is what gives your organization the ability to operate tax free both on a federal and state level.
In order to get your tax exemption, you’ll need to file one of three forms which can be found on the gov website, IRS Form 1023, IRS Form 1023-EZ, or IRS Form 1024. Each of these are a bit different in cost and the scope of what’s needed to secure them. And each has their own advantages and disadvantages.
Form 1023-EZ is definitely the easiest option as it is a small three page document and also has the least expense associated with it with a filing fee of only $275. The problem is that if you decide to go with this option, your tax exempt status will only be effective on the first $50,000 you receive in donations. And you aren’t allowed assets exceeding $250,000.
While this may be fine for smaller nonprofits, if you plan to grow much larger than you’ll have no choice then to go with either IRS Form 1023 or IRS Form 1024. These documents are much more complex at between 50 to 100 pages long, and the filing fee is more substantial at $600. But with either of these options, you won’t have any limits on the size of your organization.
We do suggest if you’re going to go with anything but the EZ form, you should use an agent or professional tax specialist to do the filing for you as one small mistake can get your application rejected and you’ll need to refile your application. Considering it can take up to nine months for approval, a small mistake can become quite costly and seriously hamper your progress.
Once your application is approved, you’ll receive an IRS Determination Letter which makes your nonprofit tax-exempt status legal. This document not only allows you to now operate tax free on a federal level, but once you submit your letter to the proper Delaware authorities, you’ll also be exempt from taxes in the state of Delaware.
As you can see, in order to form a Delaware nonprofit there are definitely a few steps in the process. And although a few of them might seem daunting at first, every one of them is manageable with some time, patience and a little knowledge. The biggest step no matter what state you decide to register your nonprofit in will be securing your IRS tax exempts status. And since this is such a crucial step, we highly suggest using a professional service if you have the ability to. Just this one step can help you secure your nonprofit status. It's also important to start your charity with every advantage possible, PayBee being one of the most important. With PayBee you can keep track of the entire process with our nonprofit specific software's backend. If you'd like to check out a demo to see how we can help you through this entire process and beyond, simply click here.
Frequently Asked Questions
How to Start a Nonprofit in Delaware With No Money?
Although it is impossible to start a nonprofit with absolutely no money, it is possible to do it very cheaply if you can do all the work yourself as well as going with IRS Form 1023-EZ, but be aware using this form for the formation of your start up will come with limitations as discussed in our above article.
What Are the Tax Benefits of Starting a Nonprofit in Delaware?
Actually there are no major tax advantages if you start a nonprofit in the state of Delaware that can't be obtained in other states. Your 501c nonprofit status relies on the IRS and not a state level. And yes, you will be granted state tax free advantages after successful filing for a 501c, but this is also true for most states when forming a nonprofit.
Can I Create a Nonprofit From Another State in Delaware?
Yes, but you’ll need to follow Delaware’s guidelines on creating a corporation from out of state. You’ll also be required to appoint a registered agent that has a legal address in the state and can accept legal documents on your nonprofit’s behalf.