Non-Profit 101

In one of Genetic Alliance’s listserv, we often ask questions about running our nonprofits and share experiences to help our fellow advocacy groups in their mission to grow their organization beyond its vision.

Yesterday, a very important question came up about moving your nonprofit to another state.

How is that done? Do you need to register in the new state? What about branching out to other states and making chapters?

Jim Moore of KS&A gave a description that I think was very beneficial to all nonprofits who are young in the business.

Jim told us:

This is very basic info, and, above all, you’ll need competent, qualified, licensed legal counsel to assist you.  This is VERY basic work for an exempt organization (EO) attorney, so don’t pay too much (perhaps $500 to $1000).  This stuff is simple enough for a savvy lay person to handle, but it’s really best handled at the “paralegal” level.
 
A nonprofit corporation and a 501 (c)(3) [or 501 (c)(4) or any other 501 (c) exemption] are two very different things.  The corporation is an “entity” that exists under the corporation laws of the home or host state.  The 501 (c)(3) is an IRS tax-exempt status that gets appended to the nonprofit corporation.  It is possible to be a nonprofit corporation and not be tax exempt.  One can lose 501 (c)(3) status and still be a nonprofit corporation.  Before they gain exempt status with the IRS, a nonprofit organization is taxable and donations to that nonprofit are not deductible. Your 501 (c)(3) is portable.  It sticks with the underlying corporation as it evolves and/or moves.  That corporation’s (or entity’s) identity exists with its EIN (see next).

So, when you move from state to state, you carry your 501 (c)(3) and your entity ID with you.  To do this you apply to become a nonprofit corporation in the new state USING THE EIN (employer ID # — also known as tax ID number) from the corporation in your old state.  The EIN is like your social security number—and it is the absolute ID that enables your entity to move around but maintain continuity of its ID with the rest of the world. So you literally move your entity from one state to another—change names or whatever else you like—and simply tell the IRS what you did—all under the continuity of ID afforded by the EIN and 501 (c)(3). 
 
So, this gives you the 101 on understanding nonprofits, what they are, and what your EIN does for you.

I want to thank Jim for helping us all understand this information and I know that for some who are just starting out, this is good information to know!

Since Jim is not an attorney nor does he play one on tv, I am adding Jim’s disclaimer here: Since this may look like some sort of legal advice, I must assure you it’s not—and issue this disclaimer:  I am not an attorney or a CPA, and these comments are not intended to be nor should they be construed as professional counsel.  I strongly urge that you seek appropriate counsel for legal and accounting matters.

Tomorrow, I will continue with Jim’s advice and tell you all about branching out and what you need to do when you are making chapters for your organization.

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