Nonprofit Startup: Frequently Asked Questions (FAQs)

At Maryland Nonprofits, we're asked a lot of different questions about a lot of different things. From nonprofit management, to finance, to board governance, to fundraising, we've spent time researching the answers to many of your questions. We are now giving you an opportunity to find the answers to some of our more frequently asked questions on our website.

How do I start a nonprofit organization in Maryland?

You should have a core group of people committed to a common purpose and who understand how they will establish the organization and raise the money to carry out the planned activities. The group should develop a basic working plan for the organization or project by setting its goals, planning activities and developing a fundraising plan.

Create Articles of Incorporation (also called a Charter): This document, when filed with the State creates a new legal entity.
File the Articles of Incorporation with the State of Maryland (as a non-stock corporation)
Department of Assessment and Taxation
Charter Room 809
301 W. Preston Street
Baltimore, Maryland 21201-2395
The cost is $100.00 (Fees are subject to change, check their website before you go.)
Draft the Bylaws. The purpose of bylaws is to lay out the rules of conduct and authority for the board of directors, officers and members See the Maryland Department of Assessment and Taxation website for more information on how to draft your bylaws.
Organizational Meeting. The organizational meeting is the first official meeting of the new corporation. The persons who must be present or sign the minutes are the directors named in the articles of incorpartion. By the time you hold the organizational meeting, you should have a diverse and committed group as the board of directors. An all-family or one-person board will not pass muster with the Internal Revenue Service. Bylaws should be in at least draft form.
Federal Employer Identification Number (EIN) This is like a Social Security number for an organization. Every organization needs such a number in order to open a bank account or transact business with the federal government - even if there will never be any employees. To get an EIN, you must file an "Application for Federal Employer Identification Number" Form SS-4, with the IRS.
To get IRS forms call: (800) 829-3676 or visit their website.
IRS Tax Exemption. Nonprofit does not mean tax exempt. An organization can be incorporated and nonprofit without being tax exempt. Most beginning small businesses do not make a profit. The only way an organization can be determined to be tax exempt is to make an application to the IRS. There are two exceptions to the application requirement:
1) The organization's gross revenues normally do not exceed $5000 or
2) The organization is a church or an integrated auxiliary of a church.

Most organizations applying for tax exempt status will seek a 501(c)(3) as a charitable, educational organization. In a 501(c)(3) organization, the IRS will require a board of directors to have an arms-length relationship with the organization and not benefit from its services. The cost to apply for tax exempt status is $300 for an organization with a projected budget of under $10,000 per year and $750 for organizations projecting budgets of more than $10,000.

Calling the IRS to check on any fee changes is recommended. IRS form to get - Application for Recognition of Exemption Under Section 501(c)(3) Package 1023. (This is a really long form - hence the term "package." You need to have a fully developed business plan to complete this paperwork.) The IRS may mail your paperwork back to you and ask you for additional information or to clarify a response. It normally takes a minimum of 3 months from start to finish to complete the process. Once you have received your IRS determination letter, you are a nonprofit organization.

Please note: Maryland Nonprofits offers a 3-hour course "Starting a Nonprofit" once a month and also sells Starting a Nonprofit Organization. Visit our website and check out our training calendar for details.

Source: Starting a Nonprofit Organization

What are the legal requirements for running a nonprofit organization?

Nonprofits need to do all that they can to protect the individuals and families who may be harmed by their organization. Additionally, nonprofits must work diligently to protect the organization itself from losses to the nonprofit's operation. Nonprofits should be aware of and comply with all applicable federal, state, and local laws. Your nonprofit should be complying with :

Requirements applicable to tax exemption/tax exempt status, Requirements for corporate start up in the State of Maryland,
Requirements related to organizations with employees including workplace posters and notices, hiring related requirements, on-going employment related filings, employee benefits and retirement plan documents,
Requirements applicable to solicitations, fundraising, and related activities,
Requirements applicable to lobbying activities,
Other miscellaneous requirements.

Internet Sources

Maryland Secretary of State's office. Links to several informational sites on following legal requirements in Maryland.

What are bylaws and why are they important?

Bylaws are the internal, written rules that govern your nonprofit corporation. They follow from the articles of incorporation and are subordinate to them. Because they can be more readily revised, bylaws are more detailed and deal with more specific issues. (For more information on charters and bylaws of nonprofit corporations in Maryland, see Subtitle 2. Nonstock Corporations of Title 5 of the Corporations and Associations Article of the Annotated Code of Maryland.)

Bylaws perform at least three functions: they determine how an organization is structured, they determine the rights of participants in the structure, and they determine the procedures by which rights can be exercised. To create bylaws, you can either follow the instructions in a self-help resource or hire a lawyer in your state to draft them for you. Typically, the bylaws are adopted by the corporation's directors at their first board meeting.

Sources for Model Bylaws can be found on the internet and in the Maryland Nonprofit's library as well. Here is a list of resources on the topic in our library:

Hummel, Joan. Starting and Running a Nonprofit Organization. 2nd ed. Minneapolis, MN: University of Minnesota Press, 1996.
Mancuso, Anthony. How to Form a Nonprofit Corporation in All 50 States. 4th ed. Berkeley, CA: Nolo Press, 1997.
Nonprofit Corporation Forms Handbook. St. Paul, MN: West Group, 1998-2001.
Standards for Excellence: Board Composition. Baltimore, MD: Maryland Association of Nonprofit Organizations, 2007.

Starting a Nonprofit Organization. Baltimore, MD: Community Law Center, 2006.