How to Start a Nonprofit in Ohio - A Step by Step Approach!
How to Start a Nonprofit in Ohio - A Step by Step Approach!
If you’re looking to start a nonprofit in Ohio and are confused on what steps need to be taken, our complete guide will walk you through the entire process step by step. And although starting a nonprofit in Ohio isn’t all that different than many other states, there are a few state and local laws and regulations you’ll need to be aware of.
This guide is for anyone who has found a passion for helping people or doing something special that makes the world a better place for everyone, and are now considering making the jump to create a legal nonprofit to take advantage of all the tax benefits and other perks nonprofits posses, you’ve landed on the perfect guide to get you through the entire process.
With over 16,000 active and reporting 501(c)(3) public charities in Ohio and more than 78,000 total nonprofit organizations employing almost 12% of the state's entire workforce which amounts to over a half a million people, nonprofits play a big role in Ohio's local economy and generate an estimated $103.2 billion in annual revenues.
This is good news for those of you starting a new nonprofit in Ohio as Ohioans give $5.2 billion to charity each year, and that doesn't even include things like grants, foundations or other fundraising options. So a nonprofit with a clear business plan and mission statement has a good chance of succeeding in Ohio and should be worth the time and patience it'll require to get yours set up and going.
Staring a nonprofit in Ohio isn't always easy, but the benefits are well worth the time and energy you'll be putting into the registration process. Getting your nonprofit legal as a 501(c)(3) public charity allows your organization to solicit donations while not needing to pay taxes. These benefits can help your charity grow much faster as you'll be able to gain public support much easier for your cause or mission.
Understanding the Basics of Nonprofits
Nonprofits are very specific types of businesses and in their most basic forms, they are meant to do something positive and make an impact on society in some positive way while at the same time not operating to make a profit but rather using any funds received as a way of furthering their reach and impact on the mission they're addressing.
So for example, if you have a passion for dogs and notice there are simply too many strays in your Ohio town, you may want to start a nonprofit dog rescue and adoption organization to address that specific mission. As a legal nonprofit, you can also raise money in the form of donations to your organization to help the organization become more effective at catching, spaying and finding homes for the strays in your town.
What you can't do is take any of the money given to your nonprofit other than in the form of a salary if you decide you want to become employed by your non-profit as a CEO or board member. And even then there are strict guidelines on how much people can be paid when they are working for a nonprofit in Ohio.
Steps to Start a Nonprofit in Ohio
Whenever you're starting a nonprofit in any state within the U.S., there are two main entities you'll need to deal with. These are the federal government, or the IRS, and then the localities on a state and local level. Luckily Ohio is a state that has invested in helping people starting and running nonprofit's in Ohio by creating a very helpful website that can help guide you with a few of your most important tasks. We'll include the appropriate links so as you progress through our steps, you'll be able to find the correct place to submit your forms and pay your fees. And don't worry, you don't even need a lot of money to start your nonprofit.
1. Choose a Name for your Organization
This may seem trivial but in order to do anything in the state of Ohio, your entity must have a name that is unique to your organization and is not currently registered with anyone else at this time. That's why we suggest the very first thin you do is come up with a catchy and memorable name for your venture. In fact, try to come up with a few just in case the one you want is already registered by another business. You can search online in Ohio to see if your name is available here.
Here are a few tips on naming your nonprofit. Make sure your name clearly states what your non-profit is about and what it does. Also, try to make it short and memorable and if possible, fun to say and add to slogans and such. Finally, be sure the URL is also available, you can choose either a .com or .org for your domain name.
2. Recruit Directors and Officers for Your Group
By both federal and Ohio state law requirements, nonprofits in Ohio need to have a minimum of 3 directors. Your Board of Directors should be individuals that you feel can offer something that will help your nonprofit corporation prosper and have the same ideals as you do when it comes to your mission. It's wise to select members that can offer things like legal or accounting services, or have deep ties in the community and can help with fundraising events and volunteer recruitment.
Your charity must also have a minimum of 3 officers, a president, a secretary, and a treasurer according to Ohio state law. One person may hold two different positions, and they can on the board as well, but this isn't a requirement. And although a youth can start a nonprofit, it's best to have at least one person over the age of 18 both as a board member and as an officer for legal reasons like opening a bank account or entering lease agreements.
3. Appoint a Statutory Agent
Once you have your Board of Directors and officers all in place, the last person you need to appoint is a Statutory Agent. A statutory agent is required by the state of Ohio and is responsible for receiving legal documents and official correspondence on behalf of the nonprofit organization. The agent is registered with the Ohio's Secretary of State’s office and must show up in person to be registered.
Registration requires the person to sign a written acceptance of the appointment at their office. Be sure to bring proper ID, and there is no fee for this registration. Ohio law typically requires the registered statutory agent to have a physical address in Ohio and be available during regular business hours to receive legal documents and notices. If you need more information you can search for The Ohio Revised Code, specifically Chapter 1702.
4. State Business Certificate of Incorporation and Articles of Incorporation
In Ohio, to create a nonprofit entity, you start by filing a certificate of incorporation with the Ohio Secretary of State. The articles of incorporation, or articles of organization, as they are commonly referred to for nonprofits, will generally include the following information:
- Name of the Nonprofit: You must choose a name for your nonprofit corporation. The name should comply with Ohio's naming requirements for corporations, and you should ensure it is not already in use by another entity in Ohio.
- Principal Office Location: You need to specify the address where the principal office of the corporation is to be located in the state of Ohio. This is where official business correspondence will be sent.
- Purpose: The articles of organization must state the purpose for which the nonprofit is formed. This purpose should comply with both state and IRS requirements. Your purpose should be stated in a way that clearly shows that the organization is organized exclusively for charitable, educational, religious, or other tax-exempt purposes.
- Registered Agent: You are required to provide the name, address, and signature of a statutory agent. The registered agent is a person or entity designated to receive legal documents and official notices on behalf of the nonprofit as stated above.
Although there is much more information that can be included in your Articles of Incorporation, these four key pieces must be included for the Ohio Secretary of State to accept them.You can file your certificate of incorporation here or in person and there is a $99 filling fee that must be paid when you file.
Although the state of Ohio only requires these four basic requirements, this information is not enough for successfully registering as a 501(c)(3) tax-exempt status nonprofit with the IRS, so it's best to just write out a complete and comprehensive articles of incorporation from the beginning that will satisfy both state and federal requirements to become a nonprofit .
The information required by the IRS but not the Ohio Secretary of State are:
- Statement of Purpose: Your articles of organization must clearly state that your organization is formed for one or more of the tax-exempt purposes specified in Section 501(c)(3) of the Internal Revenue Code, such as charitable, educational, religious, or scientific purposes.
- Dissolution Clause: You should include a dissolution of assets clause that specifies that your organization's assets will be used exclusively for tax-exempt purposes and will be distributed to another 501(c)(3) organization in the event of dissolution.
- Non-Discrimination Clause: Your organization should include a non-discrimination clause stating that it will not discriminate on the basis of race, color, religion, gender, national origin, or any other protected characteristic.
- Prohibited Activities: Include language indicating that your organization will not engage in prohibited activities, such as excessive political lobbying or substantial unrelated business activities that could jeopardize its tax-exempt status.
- Private Benefit and Inurement Prohibition: You must include provisions stating that no part of the organization's net earnings will benefit private individuals or insiders.
Since these requirements are only for the IRS, they don't need to be included in the application you send to the Ohio Secretary of State, but they can be and it won't effect your filling.
5. Employer Identification Number (EIN)
Every business nonprofit or for-profit needs to apply for an EIN number. You can think of it as a social security number for your charity and is necessary for things like opening bank accounts, submitting tax returns, giving out donation receipts and paying employees. It is also required when you get to the step of filing with the IRS for charitable tax free status, so it's a must have and is easy enough to get.
Getting your EIN number from the IRS is actually a painless step and there isn't even a fee involved. You will need to go here and fill out a short form, Form SS-4. This is a short easy form that should only take a few minutes to complete, but is the first step of getting your tax-exempt status with the IRS. You'll get your EIN confirmation notice and your number instantly if you're doing it electronically, just download it and save it.
6. Bylaws and Conflict of Interest Policy
When applying for 501(c)(3) tax-exempt status with the Internal Revenue Service (IRS) in the United States, the organization's bylaws and conflict of interest policy are important documents that need to be developed, approved, and adopted as part of the application process. These documents show the IRS that your charity has appropriate checks and balances in place and that you can adhere to their requirements for tax-exempt status.
Bylaws: Your Bylaws are the rules and regulations that your nonprofit will work within. They include how the organization will be structured, how its board of directors and officers will be elected, and various other operational and administrative details. The IRS requires a copy of your organization's bylaws to be sure you’re operating in a way that is consistent with the regulations governing 501(c)(3) entities.
Conflict of Interest Policy: A conflict of interest policy is designed to prevent individuals associated with the nonprofit, such as board members, officers, and key employees, from engaging in activities that could personally benefit them at the expense of the organization's mission. Having a well-drafted and approved conflict of interest policy shows the IRS that your organization is aware of possible problems and you’ve created a way of dealing with these if they come up
Both the bylaws and the conflict of interest policy are necessary steps in your application process for 501(c)(3) tax-exempt status. Be sure these are both voted on and adopted in your first Board of Directors meeting to increase the chances of a successful application.
7. Initial Board of Directors Meeting
The initial organizational meeting of your Board of Directors, or organizational meeting of the board, is extremely important in forming a nonprofit as there will be a lot of things you'll all need to vote on and ratify in order to continue with your charity's application process.
At this meeting you will approve the bylaws, adopt the conflict of interest policy, elect directors, appoint officers, and approve resolutions such as opening the organization’s bank account. Important decisions are being made so be sure to record them in the meeting minutes.
Creating a nonprofit organization involves a crucial initial board meeting. Your first board meeting is the perfect time to elect directors if they weren't named in your organization's articles. Additionally, you'll appoint officers who will play key roles in guiding your nonprofit. The choice of directors and officers is pivotal in shaping the future of your organization. This meeting sets the foundation for your nonprofit's future success and compliance with legal requirements.
During this meeting, you should adopt customized bylaws, establish a conflict of interest policy, elect directors and officers, and approve essential resolutions such as approving resolutions for immediate needs like opening a corporate bank account. Be sure to record and store the minutes of this meeting, as they are necessary for seeking tax-exempt status and ensuring compliance.
Ohio State Tax Identification Number
Just because you're seeking tax exempt status doesn't mean you still don't need to pay certain state taxes. No matter what sort of entity you are, you must be registered with the Ohio Department of Taxation. And although once you do receive your tax exempt status from the IRS and have certain state level tax advantages, you'll still be liable for other state taxes like commercial activity tax (CAT), sales tax, employer withholding, unemployment compensation, workers' compensation, and municipal income taxes. So it's a must but luckily it's easy enough to apply online through the Ohio Business Gateway website or by phone at (888) 405-4089. There is no fee for this.
Federal 501(c) Tax Exemption
When it comes to filing for 501(c) status, you have 3 choices of forms to fill out: IRS Form 1023, IRS Form 1023-EZ, or IRS Form 1024. Which one you decide to fill out will depend on your organization and the amount of fundraising you plan to do and the amount of assets the organization will own.
While most small charities start off using the IRS Form 1023-EZ due to it only being 3 pages and having a fee of only $275, there are certain drawbacks to be aware of. The biggest one is this form of tax exemption is capped at only $50,000 in annual receipts and $250,000 in total asset.
So if you're planning on having a much larger charity, you'll be forced to use either IRS Form 1023 or IRS Form 1024 which while giving you much larger federal tax breaks, also require a substantially more amount of work as these are 40+ page documents that require a lot of information. Many estimates quote that it takes at least 100 hours to properly fill these forms out correctly! Plus the filing fee is $600.
The waiting times for your application process to conclude also varies depending on which form you decide to use. The IRS Form 1023 or IRS Form 1024 procedure can take as long as nine months to a year to get approved, although the EZ form usually takes less than two months.
Once you've completed whichever application and the IRS has approved you for tax exemption status, you'll receive a Determination Letter officially recognizing your exemption. Your exception also automatically exempts you from state taxes, you just need your tax exemption code when you purchase things for your business.
One thing we do recommend here is if you decide to go the non-EZ form route, if you're organization can afford it, it's best to hire a professional who has substantial experience in filling out these applications. You don't want to wait a year to be approved only to find you made a mistake or didn't include a necessary document in your filing.
Charitable Solicitation Registration
A charitable solicitation registration must be done before you can do any sort of fundraising or ask for donations in the state of Ohio. The State of Ohio Attorney General’s Office requires all charities in the sate to file a one-time registration and then submit annual financial reports that will be available to the public within six months of creating your charity. The registration can be done online here.
Here’s a quick overview of all the information you’ll need to file:
- Your organization's legal name and contact information.
- A copy of your IRS determination letter granting tax-exempt status.
- Financial statements and budgets.
- A list of all officers, directors, and key employees.
- A detailed description of your charitable programs and fundraising activities.
You'll also need to pay the required registration fee, which varies depending on your organization's gross revenue and relies on a sliding scale.
Maintaining Nonprofit Compliance
In order for your nonprofit to continue to be compliant you’ll need to stay current on a few state and federal obligations. One thing to mention here, PayBee offers a lot of tools on their platform that can drastically make all of this easier so you can focus on running your organization. You can sign up for a free demo here and see how we can help you stay compliant while streamlining everything from fundraising to record keeping for your nonprofit.
On a state level, Nonprofit Corporations are required to file Certificates of Continued Existence which you can do here. This basically tells the state that you are indeed still performing business and you are staying compliant. This form must be submitted every five years to stay in compliance.
All nonprofits in Ohio must also renew their charitable solicitations registration at the end of every fiscal year. You’ll also need to submit annual financial reports to the State of Ohio Attorney General’s Office. This information is open to the public and is required to continue in Ohio as a nonprofit charity.
On the federal level, your charity must file taxes with the IRS just like every other type of organization and business. You'll need to file either Form 990, 990EZ, 990-N, or 990-T, depending on the type of organizational structure you used or your nonprofit. If you have any questions the IRS offers a help page on their website.
What are the costs associated with starting a nonprofit in Ohio?
On the state level you'll need to pay $99 for your Articles of Incorporation. When submitting your documents to the IRS, the cost is either $275 or $600 depending on which forms you're using.
How long does the process take?
The length of time it takes to complete the registration process depends on what forms you're using and how busy the offices are that you're submitting them to. With the rise of COVID many processes are taking more time than usual, so adjust your timeline accordingly. But the fastest process using the EZ form can take anywhere from one to three months, where as the other options can take from nine to twelve months.
Can one person start a nonprofit?
No, one person alone can not start a nonprofit. Due to both state and federal laws regarding nonprofits, you'll need a minimum of three board members and officers. For more information please see our section above titled, Recruit Directors and Officers for Your Group.