March 18, 2010

byWard, Miller & Geyer, LLC

Lewis Miller, Esq.Clint Stewart, Esq.Matt Molloy, Esq.

THE INFORMATION OUTLINED IN THIS SLIDESHOW AND ACCOMPANYING MATERIALS IS SUMMARY IN NATURE AND IS NOT INTENDED TO COVER ALL ASPECTS OF STATE AND/OR FEDERAL LAW WITH REGARD TO THE TOPICS DISCUSSED. THESE MATERIALS SHALL NOT CONSTITUTE LEGAL OR PROFESSIONAL ADVICE BY WARD MILLER & GEYER, LLC (“WMG”), OR ITS ATTORNEYS AND MAY NOT BE RELIED UPON AS SUCH. FURTHERMORE, ATTENDANCE AT THIS CLASS OR USE OF THE ACCOMPANYING MATERIALS DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN WMG AND THE RECIPIENT AND ATTENDEES SHOULD SEEK LEGAL ASSISTANCE AND ADVICE CONCERNING HIS OR HER UNIQUE INDIVIDUAL SITUATION.

Attachments

1. Utah Nonprofits Association - The Art of Forming a New Nonprofit

2. State of Utah - Department of Commerce - Division of Corporations & Commercial Code - Articles of Incorporation (Nonprofit) Instructions

3. State of Utah - Department of Commerce -Division of Consumer Protection – Instructions for Charitable Organization Permit Application Form

4. Example – Utah Refugee Coalition (“URC”) Application for 501(c)(3) Status – IRS Form 1023

5. IRS - Compliance Guide for 501 (c)(3) Public Charities

Steps to Create Non-Profit Corporation in Utah

1.Select Name/Reserve Name

2.File Articles of Incorporation

3.Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) – Form SS-4

4.Adopt Bylaws

5.Submit Charitable Organization Permit Application Form to the State of Utah

6.Submit Application to get 501(c)(3) Status from the IRS – Form 1023

7.Apply for Tax Exemption with State of Utah – Form TC160

8.Keep Corporate Records

See Attached “The Art of Forming a New Nonprofit” from the Utah Nonprofits Association for step-by-step instructions.

Allows people to work together for common purpose

Sets rules for how enterprise is governed

Outlives individuals

Can limit liability

Useful for obtaining 501(c)(3) status

Examples of business entities include partnerships, corporations, limited liability companies (“LLC”) and limited partnerships

"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creation of law, it possesses only those properties which the charter of its creation confers upon it… Among the most important are immortality … properties by which a perpetual succession of many persons are considered as the same, so that they may act as a single individual. A corporation manages its own affairs, and holds property without the … endless necessity of perpetual conveyance … from hand to hand. It is chiefly for [this] purpose … that corporations were invented, and are in use. By these means, a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being.“ - Chief Justice Marshall in Dartmouth v Woodward (1819)

The word “corporation” comes from the Latin word “corpus”, which means body. In other words, a corporation is a “body” for legal purposes

1.Sole Proprietorships

- no limited liability

- one person

2.General Partnerships

- no limited liability

- two or more people

3.Limited Partnerships

- limited partners have limited liability

- must have at least one general partner with unlimited liability

4.Profit Corporations

- shareholders own company and have limited liability

- governed by Board of Directors who are elected by shareholders

5.Nonprofit Corporations

- like Profit Corporation, but no shareholders

- can have “members” or have a self-perpetuating Board of Directors- use this if applying for 501(c)(3)- purposes limited by state law

6.Limited Liability Companies

- hybrid of partnership and corporation

- limited liability but flexibility of partnership

For more info, see: http://corporations.utah.gov/bizorg.html

You cannot use a name that someone else is using – i.e. Microsoft

First in time, first in right Federal registration gives rights

nationwide Can search Utah registrations at

https://secure.utah.gov/bes/action

Can reserve name in Utah if you are not ready to file Articles of Incorporation yet

Search Google as well Web address availability

A corporation is created by filing “Articles of Incorporation” with the State

In Utah, file with the Department of Commerce, Division of Corporations and Commercial Code (DCCC)

DCCC has resources online for forming a nonprofit: http://corporations.utah.gov/business/nonprofart.html

See attached Instructions from DCCC DCCC has two forms online – one meets

State requirements and the other meets requirements for 501(c)(3). Use the latter if you intend to apply for 501(c)(3)

Minimum Info for Articles

1.Name of Corporation

2.Purpose

- specific language required for 501(c)(3)

3.Registered Agent

4.Incorporator

5.Voting Members/Stock

- member vs. non-member

6.Assets

- nonprofits limited in what they can do with assets when dissolved

Optional Info

1.Principal Address

2.Directors

- must have 3 directors, but can wait to name them

To qualify for tax emption the Articles of Incorporation must:

1.Limit the organizations purposes to one or more tax exempt purposes;

2.Not expressly empower the organization to engage in activities that are not in furtherance of its purposes; AND

3.Permanently dedicate the organization’s assets to an exempt purpose.

File a form SS-4 with the IRS to obtain EIN – like a Social Security Number for a company

May be able to do it online at: http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

Can find info and forms at: http://www.irs.gov/businesses/small/article/0,,id=98350,00.html

The Articles of Incorporation create a corporation, but the Bylaws are the rules for how the corporation is run

Bylaws are not filed with the State

Can be amended by Board of Directors unless otherwise provided in Articles

Sample Bylaws in attached UNA article

Before you can ask for money for a charity, you must register with the Utah Department of Commerce, Division of Consumer Protection

Submit the “Charitable Organization Permit Application Form” (copy attached along with instructions)

Application fee is $100

http://consumerprotection.utah.gov/registrations/charities.html

What does 501(c)(3) mean?

- purely a tax issue

- makes donations tax-deductible

- required for some grants

Do you need to apply for this now?

- can be expensive and time-consuming

Alternatives

- partnering with existing 501(c)(3)

IRS Form 1023

- covered in detail below

If you get 501(c)(3) status, then file with State of Utah for tax exemption

Form TC-160

http://tax.utah.gov/forms/current/tc-160.pdf

What is governance and why is it important? Appointing Officers and Directors. Holding regular and annual meetings. Preparing minutes and resolutions.

Maintaining the corporation as a separate legal entity helps ensure continued tax exempt status and protects those working for the corporation from liability

Accounting is critical Annual tax returns

“Non-profit” and “Tax-exempt” are NOT the same. 

Non-profit status is determined by STATE law, which governs ODs. 

Tax exempt status is governed by FEDERAL law. 

“Organized and operated” exclusively for one of eight (8) exempt purposes:

Religious Charitable Scientific Testing for Public Safety Literary Educational Purposes To Foster National or International

Amateur Sports Competition; or For the Prevention of Cruelty to

Children or Animals.

501(c)(3) Charitable, religious, and educational organizations

501(c)(4) Civic leagues and social welfare organizations

501(c)(5) Labor/agricultural/horticultural organizations

501(c)(6) Business and professional leagues

501(c)(7) Social and recreational clubs

501(c)(8) Fraternal beneficiary societies

501(c)(19) Veterans organizations

What is the difference? Primary difference is source of financial support

A PC has a broad base of support from contributions while a PF has very limited sources of support

An example of a well known PF is the Bill and Melinda Gates Foundation

Private Foundations Subject to strict operating rules and regulations

that do not apply to a public charity Presumption by IRS

Unless statutorily recognized, the IRS presumes all organizations are PFs

You must be able to show PC status Churches, schools, hospitals and medical

research organizations have statutory PC status

Elements required for PC status:

1. Receive a substantial part of support in the form of contributions from publicly supported organizations, governmental units and/or the general public; OR

2. Normally receive no more than 1/3 of support from gross investment income and unrelated business income combined and gets more than 1/3 of support from contributions, membership fees, and gross receipts from activities related to exempt functions.

Organizational Test The Articles of Incorporation must:

1. Limit purposes to one or more of the eight exempt purposes (See Slide 6); and

2. Not permit the organization to engage in any non-exempt activity

3. The assets of the organization must also be permanently dedicated to an exempt purpose

Operational Test Organization must primarily engage in

activities that further its exempt purposes The organization must limit participation

in certain activities, while absolutely refraining from others

If not, 501(c)(3) status in jeopardy

The application for federal exempt status is made by use of Form 1023

1023 should be filed within 27 months after the end of the month in which the Articles of Incorporation were filed

Who does NOT have to file 1023? You qualify for PC status and DO NOT

have more than $5,000 in annual gross receipts;

Churches; and Subordinate Organizations.

(IRS Publication 557 at http://www.irs.gov/pub/irs-pdf/p557.pdf )

In Part I, the application supplies the informational material about the applicant, including:

Name, address, phone and primary contact person

EIN information If represented, the name of counsel Applicability of form 990 Date of incorporation

The majority of non-profits are organized as corporations

This section asks you to indicate your organization structure and attach the Articles of Incorporation and Bylaws

The Articles of Incorporation must:

1. Limit the organizations purposes to one or more of the exempt purposes;

2. Not expressly empower the organization to engage in activities that are not in furtherance of its purposes; AND

3. Permanently dedicate the organization’s assets to an exempt purpose

Unless these requirements are satisfied as stated in Part III, you will be unable to file 1023

In drafting the Narrative Description of your activities, keep in mind the organizational test

Provide a description of all past, present, and future activities

For each activity explain:1. How the activity furthers the exempt

purpose;2. When it started or will begin;3. Where and whom will conduct the

activates;4. How the activities will be funded

See sample of URC 1023 Form in Attachments

The information requested in Part V has been expanded by the IRS in an attempt to prevent the creation of non-profits simply to benefit one or more of the founders, employees, or major contributors

In this section, list all the information you have regarding compensation (if any) and relationships of people within the organization

It’s also a good practice to have a conflict of interest policy in the event people are compensated for work in the organization

If your organization plans to implement programs that provide goods, services, or funds to individuals, describe these programs and to whom these programs will be offered on an attachment page

The goal is to show that your nonprofit is set-up to provide goods and/or services as part of a valid non-profit tax exempt program, and that members of the public have access to those goods and/or services

Most organizations are applying for tax exempt status as a “new” organization so this section usually does not apply

If this section is applicable, review the instructions for a more detailed explanation and to gain an understanding of “successor” since the meaning is crucial to completing this Section

“Past, present and planned” activities of the organization

The activities in Part VIII are either prohibited or strictly limited in context

No benefiting or catering to special interests

Remember “The Test!” Organization must primarily engage in

activities that further its exempt purpose and must limit participation in certain activities, while absolutely refraining from others

Financial Information is self explanatory

Newly formed include numbers for the current year and projections for the next two years

This section of Form 1023 is designed to determine whether your organization is a PC or private foundation

Remember we are assuming that you want your organization to qualify as a PC

For more information on private foundations see the Instructions for Part X of Form 1023

Depending on your organization’s gross receipts (all the money you get) the application fee is between $300 - $750

Your application will not be processed without paying the fee

http://www.irs.gov/charities/charitable/index.html

http://www.utahnonprofits.org/ http://www.idealist.org/ http://www2.guidestar.org/ http://www.usa.gov/Business/

Nonprofit.shtml http://www.nolo.com/

resource.cfm/catID/CE94A6B3-EFB6-4036-8498D5414328FD73/111/262/

http://www.stayexempt.org/