Nonprofit Representation in Pennsylvania
A nonprofit organization is a tax-exempt legal entity that uses funding to provide a public or social benefit rather than generating a profit for its owners, directors, or members. Nonprofits are sometimes referred to as non-stock companies.
Nonprofit organizations are the backbone of educational and charitable work across the United States. There are close to 2 million nonprofits nationwide, and they provide invaluable services to individuals and families from all walks of life. If you are interested in starting a nonprofit, the attorneys at Cornerstone Law Firm can help.
When you are starting (or running) a nonprofit, you may ask, “Do I need an attorney?” While it is not technically necessary, legal counsel can go a long way in forming, structuring, and running a nonprofit. The attorneys at Cornerstone Law Firm can help you with:
- Starting your nonprofit
- Structuring and/or restructuring it
- Assisting in the tax exemption process
- Drafting and negotiating contracts
- Maintaining your 501(c) status
- Litigating employee/volunteer issues
- Dissolving your nonprofit
- Real estate transactions, like acquiring land for environmental preservation and recreation or negotiating a lease for your nonprofit’s working space
- Forming and operating trusts to ensure the proper use and preservation of your nonprofit’s assets
And much more! Having a lawyer who is familiar with forming and running a nonprofit can help you navigate the process with ease. An experienced lawyer will understand entity formation, transfers and sales, business mergers, real estate and zoning requirements, and so many other aspects involved in running a nonprofit. If you’re looking for legal representation for your nonprofit, give Cornerstone Law Firm a call.
How to Start a Nonprofit
When starting a nonprofit, there are several steps involved. You must:
- Pick a name
- File articles of incorporation
- File amendments to your articles of incorporation to maintain nonprofit status
- Publish your incorporation
- Line up directors and agents
- File for tax exemptions (federal and local)
- Get an Employee Identification Number (EIN)
- Apply for 501(c) status
- Continue performing the tasks necessary to maintain nonprofit status
Along with all of those things, you may want to obtain business licenses and permits, like registering for charitable solicitation, so you can fundraise. The process can be long and involved, and it’s easy to feel overwhelmed. Hiring an experienced attorney can help to simplify things. An attorney will keep you on track, make sure you file the appropriate paperwork, and ensure you comply with all requirements.
You can form your nonprofit into a corporation by filing articles of incorporation. That is one type of entity you can create. A corporation has benefits, but it does require you to observe certain formalities, like holding meetings with directors and appointing officers. An alternative is an LLC, which is almost completely customizable. An LLC has members and managers, and there is a special structure you can utilize to fit into the nonprofit niche.
After you have filed for incorporation, you should appoint directors and officers for your nonprofit. In the state of Pennsylvania, you must have at least 3 directors acting in the capacity of President, Treasurer, and Secretary. Those roles can all be filled by the same person, but it may make more sense to split responsibilities between multiple parties. Your directors and officers can then conduct a meeting to establish bylaws for your nonprofit. You will also want to obtain a tax ID number. Tax ID numbers are required for all businesses, even if you plan to seek tax exemption.
All of this requires detailed paperwork filed with the right authorities and using precisely the “right” language. One challenging part of 501(c)(3) status is actually fitting into 501(c)(3) eligibility. Not every charitable, pro-social purpose can be 501(c)(3) eligible. Some categories include religious and sports organizations, scientific organizations, and those that advance the cause of public health and education. One attorney at Cornerstone worked with a great client who wanted to start a 501(c)(3) to share her idea of spiritual healing with the world. Unfortunately, this purpose was simply ineligible. This can be a tricky process where you would benefit from the experience of a knowledgeable attorney who has navigated it before.
Structuring or Restructuring a Nonprofit
Once your nonprofit is incorporated and established, you should structure how the business aspects will run. You will likely need to form a board of organizers or trustees to ensure you are handling donations properly and complying with legal requirements. Writing an operating agreement or bylaws can help to answer structural and budgetary questions, like:
- How many members will be on your board?
- How many committees will the board oversee?
- How many signatures are required on checks?
- Does your nonprofit have a specific statement of faith or political creed to which it holds?
- Does the statement or creed impact other decisions, like hiring?
It’s a good idea to establish some form of record keeping, like taking minutes at board meetings, so you have an idea of what was approved or rejected and when. This can come in handy should legal action be taken against your organization at any time. It can also help new board members acclimate smoothly and ensure that your organization is moving in the correct direction.
If you choose to form an LLC, you will have to create a detailed document called an operating agreement. You have to appoint members who are like the shareholders of a corporation, and managers who handle the day-to-day.
For more tips on structuring, check out our article on nonprofit best practices.
Obtaining State Tax Exemption
In order to obtain tax exempt status in Pennsylvania, you must fill out an application. You will be asked to provide information about:
- Your registration status
- Your nonprofit’s name or DBA (does business as)
- Your nonprofit’s Employee Identification Number (EIN)
- Your nonprofit’s phone number and physical & mailing addresses
- Income and expenses
- Fundraising activities
- Volunteer agreements
- Who is receiving goods or services from your nonprofit
And more. Ultimately, it’s important to establish that your nonprofit is serving a specific kind of purpose, whether that’s a charitable service, a government service, a private profit motive, or something else. Depending on your goals, your nonprofit may need to register with the Pennsylvania Department of State or within your local municipality. Pennsylvania does not require federal tax exemption to be considered for state tax exemption.
Federal Tax Exemption & 501(c) Status
In order to qualify for 501(c) status, the IRS requires your organization to meet certain qualifications for exemption. There are different types of 501(c) organizations for which your nonprofit may qualify.
- 501(c)(1)—A corporation organized under Congress
- 501(c)(2)—A corporation that holds the title of property for an exempt organization
- 501(c)(3)—A charity, foundation, church, religious organization, scientific organization, literary organization, or educational organization
- 501(c)(4)—A social welfare organization (like HOAs, volunteer fire companies, employee associations, and more)
- 501(c)(5)— A labor organization, an agricultural organization, or a horticultural organization
- 501(c)(6)—A chamber of commerce, business league, real estate board, or board of trade
- 501(c)(7)—A social club that has been “organized for pleasure, recreation, and other nonprofitable purposes”
- 501(c)(8)—A fraternal beneficiary society
Once you have determined which 501(c) status your nonprofit qualifies for, you can review the specific legal requirements set by the IRS to receive a federal tax exemption.
Don’t let complicated paperwork stop you from providing the service you want to provide. Call Cornerstone Law Firm today for help with setting up your nonprofit.
Drafting and Negotiating Contracts
Contracts are important for all types of businesses, and nonprofits are no exception. While oral agreements can be legally binding, it’s much better to have a written contract. Contracts can help to clarify terms and expectations, and ensure all parties involved are on the same page. A good contract should include contingency plans to help reduce risks and allocate responsibilities in the event of special circumstances. You should include details about where lawsuits can be filed, what state’s laws will apply, and what happens if someone breaches the contract. An experienced business attorney who is familiar with drafting and negotiating contracts can help to establish clear contracts that all parties can feel comfortable signing.
If you plan to raise funds for your nonprofit, Pennsylvania has certain regulations regarding fundraising compliance to which you must adhere. Those regulations include:
- Registering with Pennsylvania’s Department of State—Before you can solicit donations, Pennsylvania requires you to register your nonprofit with the Department of State’s Bureau of Corporations and Charitable Organizations.
- Obtaining a license for charitable solicitation—If you plan to solicit donations from Pennsylvania residents, you must also obtain a charitable solicitation license from the Pennsylvania Attorney General’s Office. This license must be renewed annually.
- Disclosing certain information to donors—When seeking donations, you must inform your donors of: your organization’s name, purpose, and how much of their donations will go toward your nonprofit’s programs and services.
- Following federal fundraising regulations—Along with state regulations, nonprofits must also comply with the regulations outlined by the IRS, including keeping records and reporting donations and expenses.
Failure to comply with state and federal fundraising regulations can result in fines and other legal penalties. You may also risk legal action from your donors. Consult with an experienced nonprofit attorney to ensure you are meeting fundraising compliance requirements.
Real Estate and Zoning Regulations
Picking a location for your nonprofit organization is an important step. This can help to establish where you will operate from, who you will serve, and how those services will be rendered. There are several points to consider:
- Zoning regulations—Different areas have different zoning laws. Not every area will allow for office space, retail space, or community centers, so it’s important to take time reviewing your area’s zoning regulations before making any purchases.
- Real estate costs—Beyond just the purchasing cost, consider your intended area’s property taxes, utilities, and maintenance fees. It’s especially important for nonprofits, who are often dependent upon donations, to consider ongoing real estate costs. You may be eligible for property tax exemption in your area, so check that as well.
- Lease agreements—If your organization is renting a space, pay attention to the terms in your lease agreement. This may explain any restrictions on your rental space and the process for renewing or terminating your agreement.
- Building codes—Your area likely has specific building codes and regulations. These will often cover things like safety, accessibility, and environmental impact. Make sure you are compliant with these regulations to keep your building up to code.
As with purchasing any type of real estate, purchasing real estate as a nonprofit can be a complex process. Call the experienced attorneys at Cornerstone Law Firm for help. We can help you review the regulations in your area, check if you are eligible for property tax exemption, and more. Give us a call today.
One of the benefits of incorporating your nonprofit is that it removes liability from you as an individual. The entity itself, however, can be subject to certain types of litigation and may need legal representation as a result. The attorneys at Cornerstone Law Firm can represent your nonprofit in:
- Employee or volunteer disputes—It’s not uncommon for employees or volunteers to file suit over things like wrongful termination, wage issues, personal injury claims, or other issues related to your nonprofit. Depending on the case, an experienced attorney can lend expertise and ensure your organization’s rights are upheld.
- Contract disputes—Nonprofits often enter into contracts with service providers, vendors, or other organizations. Whether the contract was provided by you or by another service, disputes can arise over the terms and an experienced attorney can help you understand your contractual obligations while protecting your nonprofit’s rights.
- Tax disputes—In order to maintain tax exemption on both the state and federal level, nonprofits must comply with a lot of regulations. Failure to comply can result in disputes between your nonprofit and the state or the IRS.
- Compliance issues—Outside of tax exemption compliance, nonprofits must also comply with a host of other requirements, like real estate and zoning laws, fundraising compliance, and employment regulations. Breaking any one of these can lead to legal disputes.
- Issues related to intellectual property—Your nonprofit may need to protect its intellectual property rights, especially if you have any copyrights, trademarks, or patents. Hiring an experienced attorney can help to ensure your intellectual property rights are defended.
Because nonprofits are subject to so many regulations, it can be easy for various types of litigation to arise. If your nonprofit is facing a legal dispute, give Cornerstone Law Firm a call. Our attorneys can work with you to protect your nonprofits rights and resolve any legal or regulatory disputes.
Sale, Transfer or Merge of Your Nonprofit
You may find that you reach a point where you want to sell, transfer, or merge your nonprofit with another organization. There are a number of things you can do to simplify this process and ensure a smooth transition. Those things include:
- Seeking professional advice—Before making any major changes with your nonprofit, you should seek advice from legal and financial professionals. Selling or merging your nonprofit will come with different regulations you must uphold, and experienced lawyers and accountants can help you navigate those regulations with ease.
- Developing a plan—Along with professional consultations, you should also develop a plan for the sale or merger before taking any other actions. It’s a good idea to figure out a timeline, research potential buyers or partners, and set goals for the process before beginning.
- Conducting due diligence—Once you have found a potential buyer or partner, take time to thoroughly review all of their necessary information, including financial statements, regulatory compliance, and any risks or liabilities they may bring with them.
- Obtaining board approval—You should consult with your nonprofit’s board about the sale, transfer, or merger and obtain their approval. Your board should vote on the terms of the sale or merger and ensure that the new owner or partner has a mission that aligns with your nonprofit’s.
- Filing required paperwork—You will need to file certain paperwork with state agencies, like the Pennsylvania Bureau of Charitable Organizations, to complete the transition of ownership.
Hiring a business attorney who has experience in handling mergers and acquisitions can be a great starting point before you transfer your nonprofit’s ownership. Call the attorneys at Cornerstone Law Firm for help!
Dissolving Your Nonprofit
You may come to a point where your nonprofit is ready for dissolution. You must follow certain steps to avoid liability falling back on you or any board members or directors. Have your nonprofit’s board take a vote and consult your by-laws for additional directions on starting this process. Collect a record of your tax certificates and ensure that you have no outstanding taxes due to the state or the IRS. Obtain approval from Pennsylvania’s Attorney General. Obtain approval from the court to sell any real estate. And, lastly, ensure that any leftover money that you’ve received is transferred to a similar nonprofit.
Whether you’re starting a nonprofit, restructuring one, or dissolving one, Cornerstone Law Firm can help. Our attorneys have experience with nonprofits, incorporating entities, and mergers and acquisitions. We can advise you of your rights, defend your nonprofit during legal disputes, and help you maintain your 501(c) status.
Give us a call for help with your nonprofit!