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 Maryland 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 Maryland? 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 Maryland? 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 Maryland nonprofit organization.
Starting a Maryland Nonprofit: Step by Step
Technically, the process for creating a Maryland 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 Maryland state law.
Maryland has pretty simple laws for nonprofit names:
- Your name must include one of the following words (or their abbreviations): company, corporation, limited, or incorporated
- Your name cannot imply that your nonprofit conducts activities prohibited by law or by your Articles of Incorporation
- Your name must be “distinguishable upon the records,” or distinct from the names of other entity names in use in the state
If you want more information on Maryland nonprofit names, check out the Entity Names Section of the Maryland Statutes.
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 Maryland 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 a Business Entity Search. Typically, if you type your name into this tool and no exact matches pop up, your name is probably 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 Corporate Name Reservation form. This optional filing costs $20 to submit, but once it’s approved, your name will be protected for 30 days. That gives you some extra time to prepare other business documents without losing your name to another business or nonprofit.
You can learn more through our guide on how to reserve a Maryland 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.
Maryland doesn’t have a bunch of rules about who can serve on the board. The only explicit requirement is that your board must have at least one director. As long as you meet that minimum, your bylaws can set all the other terms for your board of directors. For example, your bylaws can set the terms for how each director is appointed, how long they’ll serve, how they’ll resign, how you’ll replace them, and more.
3. Appoint a registered agent
Every Maryland 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.
Maryland has pretty lenient criteria for a nonprofit’s registered agent, as found in the Registered agent and principal office chapter of the Maryland Statutes:
- Every entity that registers with the Department of Assessments and Taxation (both domestic and foreign) must appoint a registered agent
- The agent must be an individual resident of the state or a Maryland corporation
- 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.dividual 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 Maryland nonprofits, that means filing the Articles of Incorporation.
This two-page document requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Name and address of the individual filing the form
- Name of the nonprofit
- Statement of purpose for the nonprofit
- Street address for your principal office
- Name of your registered agent and their address
- Number of initial directors you’ll have
- Signature of each incorporator
- Signature of registered agent
- Return address for the filing party
All told, this form is pretty simple to complete; all you really have to do is fill in the requested information, and you’re pretty much set to go. That said, we do recommend filling in the “purpose” section with an inclusion of the IRS’s recommended language for tax-exemption (learn more here). And be sure to get your registered agent’s signature, which designates consent to their appointment.
Once that information is completed, you’re ready to submit the Articles. If you prefer, you can file this form online using Maryland Business Express. Either way, you’ll have to pay the $170 filing fee.
Processing speed: 4-6 weeks for mail-order documents, 7-10 business days for online filings
Expedited processing: extra $50
Congratulations! Your nonprofit is now a recognized entity in Maryland!
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. And the state is pretty lenient about legal requirements for your meetings; basically, the only stipulation is that you need to hold meetings regularly. Aside from that, your bylaws can dictate the exact terms of where and when your meetings occur, along with how the meetings flow.
For example, at each meeting, your bylaws might require your president and CFO to report on the recent accomplishments and financial standing of the nonprofit. For more information on your board meetings, please consult the Meetings of Directors section of the Maryland Statutes.
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 Maryland 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 Maryland 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. That letter provides you with an exemption from the federal and state income taxes. But if you want an exemption from state sales taxes, you’ll need to apply for a Sales and Use Tax Exemption Certificate. This application, once completed and approved, is valid for 5 years. You’ll need to have the certificate on hand anytime you make purchases on behalf of the nonprofit.
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, Maryland nonprofits with employees will need to account for withholding taxes on the federal level, unemployment insurance taxes on the federal and state levels, and more.
There are also miscellaneous industry-specific taxes in Maryland, such as fees for boxing, alcohol, 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 Comptroller of Maryland just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in Maryland. 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 Maryland’s requirements for each of those three areas.
A lot of states require you to register in order to solicit charitable contributions, and Maryland is no exception. However, some smaller nonprofits will be exempt from the registration requirement; if your nonprofit has less than $25,000 in contributions, you won’t pay a fee. All you’ll have to do is file an exemption certificate and you’ll be set to go. But if you receive more than that in contributions, you’ll be required to register with the Charitable Organizations Division. The filing fee varies depending on how much you receive in contributions.
This registration needs to be renewed every year, and if you were previously exempt but begin receiving more than that $25,000 threshold, you’ll need to submit a registration of your own.
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. All lobbyists are required to register with the State Ethics Commission, and the registration must be maintained each year someone lobbies.
Lobbyists are also required to submit semi-annual reports about your activities. For more information on these reports and the registration process, check out the Lobbyists Information Page by the State Ethics Commission.
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.
Maryland, unlike some states, doesn’t have a general business license that every entity in the state needs to obtain. A few counties require a general license, though, so you should check with your local government to see if you need a general license.
Aside from that, the bulk of licensing happens on the industry level. Maryland upholds all federally regulated industry licenses, and Maryland OneStop is a great place to check out any state-level industry requirements. It’s up to you if there are any licenses 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.
Maryland state law also requires you to get a workers’ compensation insurance policy if you have employees working for your nonprofit. You can learn more about this requirement with the Workers’ Compensation Commission.
Top Resources for Maryland 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 Maryland 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 Maryland Nonprofit Development Center. In their own words, “for more than 25 years, Maryland Nonprofits has worked to promote a thriving and effective nonprofit sector in Maryland.” Maryland Nonprofits does require membership, but joining grants you several advantages, including discounted access to seminars and conferences, resources, coaching, and more, so joining will be worth your while.