Forming a nonprofit corporation is a noble goal. But if you’re just starting out, the process can feel incredibly confusing. Compared to other entity types like LLCs or even standard corporations, a nonprofit has detailed start-up requirements and complicated maintenance procedures.
In this guide, we’ll walk you through the ins and outs of forming a nonprofit in Arizona so you can get back to what truly matters: your cause.
What is a Nonprofit Corporation?
A nonprofit and for-profit corporation both have similar “nuts and bolts,” so to speak. Both businesses have a board of directors, CEOs, bylaws, annual board meetings, and the like.
But what makes a nonprofit stand out is its purpose. A business corporation typically organizes for financial gain; a nonprofit exists not to make money but to further a cause or reach a goal. Additionally, a business corporation gains investors by offering stock, which has the incentive of dividends and financial gain. Nonprofit corporations solicit contributions that don’t generate any income for those investors.
Well-known nonprofits include groups like Doctors Without Borders, Alcoholics Anonymous, and even your local YMCA.
It’s important not to confuse “nonprofit” with “no income.” Most nonprofits generate income from donations or day-to-day services. The distinction is that nonprofits use 100% of their income to pay expenses and reinvest in their cause. For example, the YMCA uses member dues and community donations for exercise programs, youth sport development, and maintaining their equipment and facilities. They also pay their employees.
Because of this, nonprofit corporations may apply for and receive a tax-exempt status (typically a 501(c)(3) designation), eliminating the corporation’s responsibility for income taxes at the federal and state levels.
Should you form one?
Before you dive into the rest of this guide, you should do a little soul-searching: should you even form a nonprofit in Arizona? The goal is a noble one, but it certainly isn’t for everyone. And some concepts simply aren’t right for the nonprofit sector.
Here are some questions to ask:
- Will I be able to convince others to buy into this cause? How hard will it be to attract donors?
- Are there other existing nonprofits with the same goal?
- If so, do they operate in Arizona? Nationwide? Should I form a local chapter of their nonprofit instead?
- Can I further this cause better or differently than they are?
- Can I hire employees for this cause, or will I rely on volunteers? How will I successfully recruit their help?
If you find yourself stumped by any of those questions, you may want to step back and get some help…or simply do some more thinking before diving in. But if you have answers to most of those questions, then you’re well on your way to starting an Arizona nonprofit organization.
Starting an Arizona Nonprofit: Step by Step
Technically, the process for creating an Arizona nonprofit entity is pretty simple. It’s really just a matter of picking a few people and filing some paperwork (it’s the requirements immediately after forming the nonprofit that get complicated).
1. Pick & Claim a Name
Choosing a name is one of the most crucial decisions for starting your business. You want to pick a name that’s memorable, likable, and most importantly, compliant with Arizona state law.
Arizona has pretty simple laws for nonprofit names:
- Your name cannot include language that implies that your nonprofit conducts activities prohibited by law or the stated purpose in your Articles of Incorporation
- Your name “must be distinguishable from” the names of all other entities in the state, or easy to tell apart from the names of other entities
If you want more information on Arizona nonprofit names, check out the Corporate Name Section of the Arizona Nonprofit Corporation Act.
As a result, you have a lot of leeway to pick a name that will resonate with your target audience, potential donors, and of course, with you. The ideal Arizona nonprofit name describes what the organization does, sounds good when said out loud, and just “sticks” in the minds of people who see it.
Whenever you pick a potential name, you should check whether it’s available using an Entity Name Search. Typically, if you type your desired name and no exact matches show up, your name is available to use. This might seem like a basic step, but it’s crucial to streamlining your filings.
Once you nail down an available name that you like, you can reserve it using eCorp’s Name Reservation Form. This optional filing costs $45 to submit (just $10 if you file by mail), but once it’s approved, it will protect your chosen name for 120 days. That gives you time to prepare other business documents without losing your name to another business or nonprofit. This reservation cannot be renewed.
You can learn more through our guide on how to reserve an Arizona business name.
2. Assemble your initial board
A nonprofit corporation is only as impactful as the people leading it. That’s why your initial board of directors is extremely important; you’ll want to pick a team of people that are just as passionate about your cause as you are.
More importantly, it’s helpful to choose a group with complementary strengths. For example, a medical outreach group might have a board of directors with three doctors, a nurse, a financial expert, a creative visionary, and a lawyer. The right board of directors will help your nonprofit thrive.
Arizona has very lenient requirements for who can serve on your board. The only explicit rule is that you must have at least one director on your initial board. Most nonprofits will appoint more than that, but that’s up to you. Your bylaws will ultimately dictate your board. You can also dictate how each director is appointed, how long they’ll serve, how they’ll resign, and how you’ll replace them. Long story short, your bylaws will call the shots.
3. Appoint a registered agent
Every Arizona entity—nonprofits, corporations, and LLCs alike—must appoint a registered agent. This individual accepts “service of process” from the state on your behalf. Basically, if the state ever needs to notify you regarding a lawsuit or an upcoming annual report due date, they’ll contact your registered agent. The agent forwards that notice to you.
Arizona has pretty lenient criteria, as found in the Arizona Revised Statutes:
- Every entity that files with the Arizona Corporation Commission (both domestic and foreign) must appoint a registered agent
- The registered agent must be a resident of Arizona OR a corporation or LLC with authority to do business in the state
- An agent must be continuously maintained
So you might ask, “Can I serve as my nonprofit’s registered agent?” Technically, you can. But we don’t recommend it. That puts your personal details (and often private details like your address and primary email) on the public record. You’ll also be busy running your nonprofit and pursuing your goals; you won’t want to tie yourself down to a registered address (especially for a tedious thing like service of process). We recommend appointing an individual you trust.
Or, if you prefer, you can hire a registered agent service instead. For a small annual fee, these services will act as your agent. That frees you up to focus on running your nonprofit.
4. File your Articles of Incorporation
Up until now, your nonprofit has just been an idea; it’s not recognized by the state government. Technically, businesses don’t “exist” until they file the appropriate paperwork. For Arizona nonprofits, that means filing the Articles of Incorporation.
This 3-page document (plus the 2-page Certificate of Disclosure) requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Your nonprofit’s name
- A brief description of your nonprofit’s day-to-day affairs, or your purpose
- Whether or not your business will have members
- Your business’s physical street address
- Name and address of your registered agent
- Name and business address of each initial director
- Name, address, and signature of each incorporator
The form itself is pretty simple, and by the time you reach this step, you probably have all the required information on hand. That said, you’ll need to ensure that you also include your Certificate of Disclosure form when submitting. This second document requests some additional information about your board of directors. It’s basically a series of yes-and-no questions, but don’t overlook it. If you neglect to include it, your filing will be rejected.
If you prefer, you can file this form online, too. There is a $45 expedited fee for online filings
Total cost: $40 for mail-order documents, $85 for online
Processing speed: approximately 4 weeks for standard filings and up to 12 business days for expedited (online documents are automatically regarded as expedited)
Congratulations! Your nonprofit is now a recognized entity in Arizona!
Prepare for & Hold Your First Board Meeting
After your Articles of Incorporation form is complete, it’s time to truly get your nonprofit’s activities underway. And that means it’s time for the first board meeting.
No two board meetings will look exactly the same; after all, every nonprofit has different tasks to accomplish. Arizona doesn’t have explicit requirements for how often you meet, although most boards hold regular meetings at least once a year. You can also dictate additional meetings or arrange how to call for a special meeting, if needed.
Most boards review the recent accomplishments of the organization and its financial standing at each meeting. Then they’ll move on to other affairs, but your bylaws will dictate the exact flow of these meetings. For more information on your regular and special board meetings, please consult the Meetings and Action of the Board Section of the Arizona Nonprofit Corporation Act.
Your very first board meeting, however, will look a bit different. Here’s what you’ll need to accomplish:
- Draft and approve the nonprofit’s bylaws: The bylaws dictate exactly how your nonprofit will be run. This includes a detailed rundown of your corporate purpose, how your board will be selected and replaced, how you’ll raise funds, how you’ll hire employees or solicit volunteers, and much more (including a provision for how to amend the bylaws). To save time, you may choose to write a draft before the meeting and revise it when your full board is present. The important thing is that the board approves the final bylaws, making them the governing document for your nonprofit.
- Draft and approve a conflict of interest policy: Occasionally, one of your nonprofit’s contributors will have personal affairs that intersect with the activities of your nonprofit. A conflict of interest policy dictates exactly what happens in those situations, protecting both the nonprofit and the individual contributor.
- Appoint someone to take minutes at each meeting: Every Arizona nonprofit corporation must establish and maintain a corporate record. That’s why every board should appoint someone to take minutes, or a summary of every board meeting, documenting what was said and what decisions were made.
- Finalize responsibilities for each board member: If one board member will be responsible for fundraising while another raises awareness for the cause, you should assign those roles at the initial board meeting.
- Appoint officers for the nonprofit (if needed): Some corporations choose to have their officers, such as the CEO or CFO, be members of the board. Others appoint non-board members to fill these roles, creating a division between the governance and day-to-day operations. Either choice is fine, but these vital roles should be filled.
This initial meeting will be a very full, technical day (or even series of days!), but nailing down these aspects will help you establish a nonprofit that’s compliant with Arizona state law and efficiently run.
Take Care of Taxes
Taxes as a nonprofit are a tricky beast; frankly, we recommend getting advice from a tax lawyer, accountant, or similar consultant to make sure you cover all your bases! But let’s take a quick look at the basics for nonprofit taxes.
First, apply for tax-exempt status on the federal level
If you don’t file for tax-exempt status, you’ll technically be liable for corporate income taxes. And that’s the last thing a non-profit wants. That’s why you’ll need to start out by filing Form 1023 or Form 1024, which are the applications for charitable, religious, or educational groups and other nonprofits respectively. After that application is completed, you’ll play the waiting game. The IRS can take up to 180 days to approve or reject your application, so we highly recommend completing the application correctly the first time.
Once your application is approved, you’ll receive a letter of tax-exempt status from the IRS. And that covers your bases with most state taxes, but you will still need to handle a few things. In the past, Arizona nonprofits had to file Form 99 to report on their finances for the year, but that requirement was phased out in 2018. You can also apply for a Taxation Privilege Tax Exemption Certificate, too. For more information on tax exemptions on the state level, check out the Exemption Organization page by the Arizona Department of Revenue.
Obtain an EIN
An EIN, or an Employer Identification Number, is an important identifier to get; it acts a bit like a Social Security Number, but for a business entity. Unfortunately, you aren’t assigned one automatically.
Thankfully, it’s free to apply for an EIN online with the IRS. Even if you don’t plan to have employees right away, it’s a good idea to have this number from the get-go. Miscellaneous forms, such as license applications or even bank accounts, may request this number.
Account for employment & miscellaneous taxes
No two businesses are alike, so each nonprofit will have slightly different taxes. That said, Arizona nonprofits with employees will need to account for withholding taxes and unemployment insurance taxes on the state and federal levels, among other things.
There are also miscellaneous industry-specific taxes in Arizona, such as fees for liquor, tobacco, and other areas. In most cases, these taxes won’t apply to your nonprofit, but it’s still a good idea to double-check with the Arizona Department of Revenue just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in Arizona. We still recommend consulting with a tax professional, as they’ll be able to give you specialized advice for your unique situation.
Register for Licenses and Permits
Licenses and permits are especially important for nonprofits. And there are three major categories of potential permits and licenses: fundraising, lobbying, and licensing. Let’s walk through Arizona’s requirements for each of those three areas.
1. Fundraising
A lot of states require you to register with the attorney general before soliciting charitable contributions. However, Arizona eliminated this registration requirement in 2013. Unless you’re an out-of-state nonprofit, you’re free to begin fundraising as soon as you’ve established your business.
2. Lobbying
If your nonprofit will be lobbying for its cause in a formal capacity, then you’ll need to ensure that each person lobbying has the appropriate registration with the Secretary of State. Each lobbyist can use the Lobbyist Registration Form.
Lobbyists also have to make reports on their expenses on a quarterly or annual basis. For more information on requirements for lobbyists, check out the Lobbyist Resources page by the Secretary of State.
3. General licensing
Nonprofits are tax-exempt, but they aren’t exempt from licensure requirements, whether that’s for an industry-specific license or a state general business license. So you’ll need to get the licenses that apply to your unique organization.
Arizona, unlike some states, doesn’t have a general business license that applies to every single entity in the state. Instead, the bulk of licensing occurs at the local and industry levels. You should double-check if your city or county requires a general business license. After that, there’s a slight chance that one of Arizona’s professional licenses will apply to your business as a whole or for professionals within your nonprofit. It’s up to you to do your research to learn which licenses apply to you and your business.
Meet Insurance Requirements
We highly recommend that every business entity maintain at least some sort of general liability policy — even nonprofit entities. There’s always a chance that something can go wrong (no matter how careful you are).
A natural disaster can happen, a break-in might cost you some important equipment, or an accident during day-to-day operations might cause a broken bone and damaged property. A general liability policy will protect your business if something like that happens.
Arizona state law also requires every business to obtain a workers’ compensation policy if they have employees. You can learn more about this requirement with the Industrial Commission of Arizona.
Top Resources for Arizona Nonprofits
Nonprofit work isn’t always easy, but you never have to go it alone! There are dozens, if not hundreds of nonprofit resources available to Arizona organizations.
On the national level, there’s the National Council of Nonprofits. They exist to advocate for and strengthen nonprofits throughout the country by providing nearly comprehensive resources, teaming up with each state’s nonprofit network, and keeping you aware of the trends in policy and public opinion. It’s also a great place to peruse the latest reports and data about charitable giving and advocacy in the U.S.
On the state level, you can always turn to the Arizona Alliance of Nonprofits. In their own words, the AAN is “the only statewide association dedicated to serving the needs of the more than 20,000 nonprofit organizations all across Arizona…through advocacy, education, information, connection and resources, which are tailored specifically for nonprofits.” The AAN does require membership (they offer 2 levels), but the alliance does offer a wide variety of learning tools and nonprofit advocacy programs that make it worthwhile.
Arizona State University also offers education and support to state nonprofits, so you may find it helpful to make connections there, too.