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 Colorado 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 Colorado? 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 Colorado? 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 a Colorado nonprofit organization.
Starting a Colorado Nonprofit: Step by Step
Technically, the process for creating a Colorado 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 Colorado state law.
Colorado has relatively simple laws for nonprofit names:
- Your name cannot include language that runs contrary to any state laws
- Your name must include an entity type identifier, such as “Co.” or “Inc.”
- Your name must be “distinguishable on the records,” or distinct from the names of other entities in the state
If you want more information on Colorado nonprofit names, check out the Entity Name section of the Colorado Corporations and Associations 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 Colorado 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 with a Name Availability Search. Typically, if you type your desired name and no exact matches show up, your name is available to use. This seems like a very 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 the Statement of Reservation of Name form. This optional filing costs $25 to submit, but once it’s approved, your name will be protected for 120 days. That gives you plenty of time to prepare other business documents without losing your name to another business or nonprofit.
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.
Colorado doesn’t have a bunch of rules about who can and can’t serve on the board. They don’t even have an explicit requirement for how many directors you need to have; three initial directors is usually recommended, though. The only explicit requirements are that your directors must be individuals, and they don’t have to be Colorado residents. You get to set all of the other requirements for your board, such as how each director will be appointed, how long they’ll serve, how they’ll resign, and how you’ll replace them.
3. Appoint a registered agent
Every Colorado 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.
Colorado has relatively lenient criteria for a nonprofit’s registered agent, as found in The Colorado Revised Statutes:
- Every entity that has documents on file with the Secretary of State must appoint a registered agent
- The agent may be an individual resident of the state who is 18 years of age or older OR a business with authority to do business in the state
- An entity may serve as its own agent provided it maintains a “usual place of business”
- The registered 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 don’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 California nonprofits, that means filing the Articles of Incorporation.
This online-only form requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Your domestic entity name
- Your principal office address (and mailing address, if different from the street address)
- The name and address of your registered agent
- Affirmation that your agent has consented to their appointment
- Name and address of the incorporator
- Whether or not your nonprofit will have members
- Provisions about your assets when the business dissolves
- Delayed effective date, if needed
- Name and mailing address of the person filing the form
All told, this form is pretty simple to complete, and the only option for filing it is online. As a result, you’ll need to have a credit card on hand to pay the $50 filing fee.
Processing speed: 7-10 business days
Expedited processing: $50 for 3-day turnaround
Congratulations! Your nonprofit is now a recognized entity in Colorado!
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. Colorado recommends that you hold at least one regular meeting each year, but you can meet more often than that if desired. And as for the exact how and when of each meeting, you can dictate all of that in your bylaws.
For example, you might require your president to report on the recent accomplishments and have your CFO report on the current financial standing of the nonprofit. For more information on these meeting requirements, please consult the Meetings and Actions of the Board section of the 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 Colorado 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 Colorado 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, setting you up for exemption from income taxes. But to be exempt from sales taxes, you’ll need to apply for a state exemption certificate from the Taxation Division. And even after that, you’ll have to check with your local city to learn if there are local sales taxes you’ll need to apply for exemption from.
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, Colorado nonprofits with employees will need to account for withholding taxes and unemployment insurance taxes on the federal and state levels.
There are also miscellaneous industry-specific taxes in Colorado, such as fees for fuel, electronic funds taxes, and more. In most cases, these taxes won’t apply to your nonprofit, but it’s still a good idea to double-check with the Colorado Department of Revenue just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in Colorado. 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 Colorado’s requirements for each of those three areas.
1. Fundraising
A lot of states require you to register in order to solicit charitable contributions or run fundraising promotions. Colorado is no exception. You can register easily (and online) with the Secretary of State; the filing fee is just $10. Then, every year you fundraise, you’ll need to renew your registration (also for $10). Failing to renew on time incurs a $60 fine.
For more information on this process, check out Colorado’s Instructions for Registering as a Charitable Organization.
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. Each registration costs $40, and the entire process can be finished online through the Colorado Secretary of State. This registration must be renewed annually.
Lobbyists are also required to file reports on a regular basis: reports for changing positions on bills, for the compensation they receive, and more. For a fuller look at compliance requirements for lobbyists, check out the Lobbying Guidance Manual.
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.
Colorado, unlike some states, doesn’t have a general business license that every entity in the state needs to get. So most license requirements come at the industry level instead. Colorado upholds all federally regulated industry licenses, and the Department of Regulatory Agencies is a great place to check out the state-level requirements. It’s up to you to learn if there are any licenses required for your industry, so be sure to complete this step!
Whenever you apply for a license or permit, we recommend inquiring about the requirements for renewing your licenses. That way, you’ll know exactly how often you’ll need to renew your licenses (if applicable).
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.
Colorado state law also requires you to get a workers’ compensation insurance policy if you have one or more employees working for your nonprofit (family members are included in this count). You can learn more about this requirement with the Department of Labor and Employment.
Top Resources for Colorado 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 Colorado 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 Colorado Nonprofit Association. In their own words, the Colorado Nonprofit Association exists to “educate and inform Colorado nonprofits about new ideas, best practices and pressing public policies so they can achieve greater impact on Colorado communities.” The Colorado Nonprofit Association does require membership, but joining grants you several advantages, including unique connections, training opportunities, and more, so joining will be worth your while.