Guide to Starting a Nonprofit in Kentucky
When you are ready to start your nonprofit, plan to incorporate and apply for 501(c)(3) status, as these are important steps to fully achieve your goals. As a 501(c)(3) nonprofit, you will be able to apply for grants and accept donations, be exempt from federal corporate income tax, and limit the liability of your organization’s officers and directors. Most importantly, you will gain credibility and legitimacy for your cause, instilling the public with confidence in your organization.
NAME YOUR ORGANIZATION: Your organization’s name establishes its brand and is also important for incorporating with the state. The legal name of your nonprofit corporation may not conflict with any other organization registered in the state. Make sure the name is available and meets state requirements.
Perform Name Search at KY SOS: Suffix must end with the word "corporation," "company," or "limited" or the abbreviation "Corp.," "Inc.," "Co.," or "Ltd." or words or abbreviations of like import in another language, provided, however, that if a nonprofit corporation's name includes the word "company" or the abbreviation "Co.," it may not be immediately preceded by the word "and" or the abbreviation "&"; or if a professional service corporation, shall end with the words "professional service corporation" or the abbreviation "P.S.C." KRS 14A.3-010(2)
RECRUIT INCORPORATORS AND INITIAL DIRECTORS: The incorporator is the person who signs the Articles of Incorporation for your nonprofit. You need at least one, but can have more than one. Directors make up the governing body of your nonprofit corporation and are stakeholders in your organization’s purpose and success. You’ll want to identify three, unrelated individuals to meet IRS requirements. You will also want to be aware of any age or residency requirements. KY Director Requirements: Number: Minimum of 3; Committee: minimum of 2 directors; Quorum: majority; and Term: 1 year and until successor elected and qualified; Qualifications: None. No residency, nor membership requirements.Kentucky Officer Requirements: Two or more offices may be held by the same individual. Defined in bylaws or board resolutions. One officer prepares minutes of the directors’ and members’ meetings.
APPOINT A REGISTERED AGENT: A registered agent is responsible for receiving legal notices on behalf of your organization. The appointed registered agent must be physically located in the state and maintain an office that is open during regular business hours.
FILE ARTICLES OF INCORPORATION: Your nonprofit’s articles of incorporation officially mark the creation of your organization. They document where and when the organization was formed and capture other information necessary to verify its existence. While requirements for language vary from state-to-state, there are some basic provisions that the IRS will look for when you apply for 501(c)(3) exemption. It is important to customize the articles for your organization and make sure you meet the state and IRS requirements. Meeting these requirements from the start will help avoid having to make amendments later or risk getting your 501(c)(3) application rejected. Some states will also require you to publish your articles of incorporation, so be mindful of any deadlines and publishing instructions.Agency: KY SOS: Form: Articles of Incorporation (Non-Profit Corporation) (NAI); Filing: Mail, in-person, or online. Fee: $8 (2018); Turnaround: ~3-5 business days. Statutes: KRS Chapter 273.
OBTAIN AN EMPLOYER IDENTIFICATION NUMBER (EIN): This unique, nine-digit number is assigned by the IRS to identify your nonprofit. All types of nonprofits will apply for an EIN, not only those that hire employees. You will use your EIN to open a bank account, apply for 501(c)(3) status, and submit 990 returns to the IRS: Agency: Internal Revenue Service (IRS); IRS Form SS-4; Guidance: IRS Pub 1635: Understanding Your EIN; Filing: Mail, Phone, Fax or Online; Fee: $0; Turnaround: Immediately by phone or online; Mail/fax, 4 business days. NOTE: Print EIN before closing session online. As you launch your nonprofit, you will receive a number of official documents. Organizing these documents in one place will save you headaches down the road. You will soon have numerous items to keep in your records including your EIN letter, bylaws, meeting minutes, 501(c)(3) determination letter, and more.
ESTABLISHING INITIAL GOVERNING DOCUMENTS AND POLICIES: Your bylaws are the governing document for your nonprofit. They serve as your organization’s operating manual and should be consistent with your articles of incorporation and the law. When your Board of Directors meets for the first time, you’ll review and ratify the bylaws and they will be a roadmap for governance from there.
At the same time, you’ll also want to create and adopt a conflict of interest policy. A conflict of interest is when someone in a key position in your nonprofit has competing interests and is making choices that could benefit themselves to the harm of the organization. Personal interests should be set aside and organizational interests prioritized. If a conflict of interest does arise, it should be disclosed immediately.Your application to the IRS for 501(c)(3) exemption will require that both the bylaws and the conflict of interest policy are approved and adopted.
HOLD ORGANIZATIONAL MEETING OF THE BOARD OF DIRECTORS: The initial organizational meeting of your Board of Directors will be incredibly productive. 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.
GET KY STATE TAX ID NUMBER/ACCOUNTS: Register with the Kentucky Department of Revenue within 30 days of incorporation for applicable tax accounts: Submit to: KY Dept. of Rev. http://revenue.ky.gov/; Form: 10A100: KY Tax Registration Application; Filing: Mail or Online; Fee: $0; Turnaround: ~5-10 business days.
APPLY FOR 501© TAX EXEMPTION: Applying for 501(c) tax exemption can feel like the most daunting step in bringing your nonprofit dream into reality, but obtaining tax exemption comes with many benefits. You will be able to apply for grants and grow your fundraising success in addition to being exempt from IRS income tax. 501(c) is the chapter of the Internal Revenue Code that regulates nonprofit organizations. Like others, you may be most familiar with 501(c)(3) nonprofits, including charities and foundations. 501(c)(3) nonprofits apply using Form 1023 or Form 1023-EZ. Review the criteria for each application and make sure you meet the eligibility requirements set out by the IRS. Other types of nonprofits, including 501(c)(4)s and 501(c)(6)s, apply using Form 1024. After reviewing and approving your application, the IRS will return a Determination Letter officially recognizing your exemption.
Completing the federal application for tax exemption is significantly easier with the assistance and support of a professional. Find someone with the expertise to ensure the correct application is being used and is completed accurately. A well-prepared application takes time, over 100 hours by IRS estimates, so put yourself on the path to success by finding a specialist to walk alongside you in the journey - from start to tax-exempt finish! Agency: Internal Revenue Service (IRS); Form: 1023; 1023-EZ; OR 1024; Instructions: IRS Pub 557: Tax-Exempt Status for Your Organization. Filing: Mail. Fee: $275 1023-EZ and $600 for 1023. Turnaround: <1 month 1023 EZ; 3-6 months 1023.
APPLY FOR STATE TAX EXEMPTIONS (NOT REQUIRED IN KENTUCKY): With your IRS Determination Letter in hand, make sure you familiarize yourself with your state’s requirements for recognizing your nonprofit’s tax-exempt status. This is an area where requirements vary state-by-state. Many states issue their own tax-exempt certificate that can be used for sales and use tax purposes, but it may require application and periodic renewal.
To file to obtain exemption from state income tax: NOT REQUIRED. Your nonprofit is automatically exempt from Kentucky corporate income tax when you receive IRS income tax exemption. To file to obtain Sales & Use Tax Exemption: Agency: KY Dept. of Rev. Form: 51A125: Application for Purchase Exemption; State Filing Fee: $0; Note: Include copy of Articles of Incorporation and IRS Determination Letter.
REGISTER FOR CHARITABLE SOLICITATION (FUNDRAISING): This is another area where laws differ from state to state, but most states require any nonprofit soliciting donations to register to do so on an annual basis. This means registering in the state prior to soliciting any resident of that state. Registering in your home state in essential, but you may also need to register other states depending on the scope of your organization. About License: Agency: KY Attorney General - Charities; Exemptions: All IRS tax-exempt nonprofits must register. KY specifically exempts Religious Institutions; Educational Institutions; Membership organizations; PTAs and student groups; Others (see Statutes: KRSA §§ 367.650; 367.657 et seq. for fill list).
OBTAIN APPLICABLE BUSINESS LICENSES & PERMITS: Running your nonprofit corporation legally also means securing all applicable licenses and permits. The range of local, state, and federal requirements is wide. Access resources like the Small Business Administration Business License & Permit look-up tool and search by your business type and locality, at sba.gov/licenses-and-permits. Kentucky nonprofits who wish to conduct bingo, raffles, and other charitable gaming must register with the Kentucky Public Protection Cabinet - Department of Charitable Gaming by filing Form CG-1: Kentucky Application for License for Charitable Organization ($25 state fee).
ONGOING COMPLIANCE: Once you have registered your nonprofit per the steps listed above, you will need to maintain compliance with all of the government agencies. Staying current with the IRS and state requirements is an ongoing responsibility.