There are two stages to consider when creating a nonprofit organization in Minnesota: first, drafting and filing the legal documents required to create a nonprofit organization, and second, applying to the IRS for 501(c)(3) status, if desired.
Stage 1: Forming a Minnesota Nonprofit Organization
Articles of Incorporation
To create a Minnesota nonprofit organization, you need to file Articles of Incorporation with the Minnesota Secretary of State. Please note that if you intend to seek 501(c)(3) status with the IRS, there is certain language that you need to use in your Articles of Incorporation to comply with IRS requirements. The exact required language will depend on the type of organization and its mission.
Bylaws
A nonprofit organization is also required to have Bylaws. Our laws are essentially the rules inside the organization and often cover issues like the election of directors, who can be a member of the organization, how officers are selected, the role of the president of the nonprofit, and other principles under which the Minnesota nonprofit will operate.
Stage 2: Applying for 501(c)(3) Status
Once you have formed a Minnesota nonprofit organization, the next step is to determine whether you want to apply for 501(c)(3) status. Obtaining 501(c)(3) status provides a number of benefits including being able to receive donations from other 501(c)(3) organizations and individual donors being able to receive a charitable tax deduction for their donation to your organization.
The application for seeking 501(c)(3) status is IRS form 1023. Most people who look at IRS form 1023 are overwhelmed by the daunting amount of information required. Our law firm has received many calls from people who attended who apply for 501(c)(3) status on their own and later sought the help of a Minnesota nonprofit attorney because they couldn’t figure out the application or the IRS rejected their application due to problems in the application. If you want to apply for 501(c)(3) status on your own, the IRS provides some guidance: 501(c)(3) application process.
Very small nonprofit organizations may want to consider whether it is worth obtaining 501(c)(3) status in light of the work and attorney’s fees associated with the process. For small nonprofit organizations, the cost to form a nonprofit organization and get legal guidance in completing the form to seek 501(c)(3) status is often $1,500 to 3,000, depending on the complexity of the organization and the time the organization’s staff are willing to spend (versus delegating the work to the attorney).
Final Considerations
If you are considering starting a Minnesota nonprofit organization, the first step is to talk to people who are interested in the cause. A Minnesota nonprofit organization needs at least three people to serve on the Board of Directors. The law permits you to serve on the Board of Directors and the president and director of the organization at the same time, so you will need at least two others to serve on the Board of Directors.
Although many people who were on nonprofit organizations consider it their organization, from a legal perspective, the organization is owned by the public and merely in trust to you, under your control. This means that you must keep your personal finances separate from the organization’s finances, you will never receive profit from the organization except a fair market value compensation for your services as a wage, and when the nonprofit ends, everything it owns (its assets) must be donated to other nonprofit organizations in accordance with the law.
