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 Massachusetts 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 Massachusetts? 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 Massachusetts? 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 Massachusetts nonprofit organization.
Starting a Massachusetts Nonprofit: Step by Step
Technically, the process for creating a Massachusetts 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 Massachusetts state law.
Massachusetts has pretty simple laws for nonprofit names:
- Your name must contain something that indicates the entity is a corporation, such as the word “Corporation” or its abbreviation
- Your name may not “assume the name or trade name of another corporation,” or pick a name that is extremely close to the name of another entity that the names are “likely to be mistaken” for each other
If you’d like more information on Massachusetts nonprofit names, check out the Name of Corporation Section of the state’s general provisions for corporations.
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 Massachusetts 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 Corporate Database Search and a Name Reservation Search (Massachusetts has two tools). Typically, if you type in your desired name and no exact matches (or super similar names) show up with either search, 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 Application of Reservation of Name form. This optional filing costs $30 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 Massachusetts 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.
Massachusetts is a bit different because they don’t require an explicit number of directors to serve on your initial board; they require you to maintain specific officers: a president, a clerk, and a treasurer. These officers may or may not be on the board. As long as you meet the state’s minimum requirements, your bylaws can dictate everything else regarding your board of directors: how each director is appointed, how long they’ll serve, how they’ll resign, and so on.
3. Appoint a registered agent
Every Massachusetts 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.
Massachusetts has pretty lenient criteria for a nonprofit’s registered agent, as found in the Registered Office and Registered Agent Section of the Massachusetts General Laws:
- Every entity that that files with the Secretary of the Commonwealth (both domestic and foreign) must appoint a registered agent
- The agent may be an individual resident of Massachusetts or a business entity with authority to operate 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 Organization
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 Massachusetts nonprofits, that means filing the Articles of Organization.
This four-page document requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- The exact name of the nonprofit
- The purpose of your nonprofit (we recommend including the IRS’s recommended language for tax exemption here, too)
- Your classes of members (if any) and what their voting rights are
- Any other provisions you wish to include
- The effective date of the filing
- Street address of your nonprofit’s principal office
- Name, address, and mailing address of your nonprofit’s president, clerk, treasurer, and any directors
- When your fiscal year will close (usually December)
- Name and address of your registered agent
- Name, address, and signature of each incorporator
- Contact information for the corporation (if there are questions regarding the filing)
All told, this form is pretty simple; all you really have to do is fill in all the requested information, and you’re set to go. And if you’ve made it this far you probably have most of that information on hand already. If you prefer, you can also file this form online. But no matter how you file, you’ll need to pay the $35 filing fee.
Processing speed: 2-3 business days
Expedited processing: $25 for 1- or 2-day turnaround
Congratulations! Your nonprofit is now a recognized entity in Massachusetts!
Prepare for & Hold Your First Board Meeting
After your Articles of Organization 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 frankly, the only listed requirement in Massachusetts state law is that your directors need to meet. The other details—the when, the where, and so on—can be set by your bylaws. For example, your bylaws might require your president and CFO to report on the recent accomplishments and the financial standing of the nonprofit at every meeting. Or perhaps your bylaws will require the meetings to be held at your headquarters or a conference center instead. Ultimately, it’s up to your bylaws.
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 Massachusetts 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 Massachusetts 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. This letter automatically exempts you from income taxes at the state and federal levels (although you’ll still be expected to file income statements). However, if you want to get an exemption from the state’s sales and use taxes, you’ll need to apply for and maintain a Sales Tax Exempt Purchaser Certificate. This document can be presented for exemption on most purchases a nonprofit makes; it cannot be used for the purchase of personal goods of the nonprofit’s members.
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, Massachusetts nonprofits with employees will need to account for withholding taxes and unemployment taxes on the federal and state levels.
There are also miscellaneous industry-specific taxes in Massachusetts, such as fees for health care, motor vehicles, 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 Massachusetts Department of Revenue just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in Massachusetts. 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 the Massachusetts requirements for each of those three areas.
A lot of states require you to register in order to solicit charitable contributions, and Massachusetts is no exception. If you plan to fundraise, you’ll need to register with the state’s Attorney General. The base filing fee is $150 if you’re registering during your first fiscal year (other entities will pay between $135-$2,100 depending on their gross revenue if they’re registering during their second year or beyond.
Massachusetts also requires you to renew this registration every year. The renewal costs vary depending on your gross revenue; the cost range is between $35-$2,000.
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. This registration must be completed with the Secretary of the Commonwealth, and it must be maintained every subsequent year that lobbying activities occur.
More importantly, lobbyists are required to submit disclosure statements about their activities and expenditures. These reports are due biannually: July 15th for the first half of the year and January 15th for the second half of the year. For more information on lobbying, check out the state’s Lobbying FAQs page.
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.
Massachusetts, unlike some states, doesn’t have a general business license that every entity in the state needs to get. However, there is a decent chance that your city or county will require a general license instead. We recommend consulting with your local government to see what the requirements are in your area.
Beyond that, the bulk of Massachusetts licensing requirements come at the industry level. The state upholds all federally regulated industry licenses, and the Business Licenses and Permits page is a great place to check out the state-level license requirements. It’s up to you to learn 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.
Massachusetts 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 Executive Office of Labor and Workforce Development.
Top Resources for Massachusetts 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 Massachusetts 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 Massachusetts Nonprofit Network. In their own words, the MNN is “the voice of the nonprofit sector, a statewide organization that brings together all parts of the nonprofit ecosystem—nonprofits, funders, community and business leaders, and elected officials—to strengthen nonprofits and raise the sector’s voice on critical issues.” It’s a great resource if you’re looking for a little extra support for your network.