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 Minnesota 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 Minnesota? 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 Minnesota? 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 Minnesota nonprofit organization.
Starting a Minnesota Nonprofit: Step by Step
Technically, the process for creating a Minnesota 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 Minnesota state law.
Minnesota has pretty simple laws for nonprofit names:
- Your name must include the word “incorporated,” “limited,” “corporation,” or “company” (or their abbreviations)
- Your name must be “distinguishable upon the record,” or distinct from the names of other state entities
For more information on entity names in Minnesota, check out the Corporate Name Section of the Minnesota 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 Minnesota 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 Business Name Availability Check. Basically, using this state tool, if no exact matches show up when you type in your desired name, yours 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 Request for Reservation of Name form. This optional filing costs $35 to file by mail and $55 to file online, but once it’s approved, your name will be protected for a full year. That gives you plenty of 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 Minnesota 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.
Minnesota 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 three directors. As long as you have the minimum three directors, your nonprofit can set out how many directors you’ll have (and their qualifications) in your company bylaws. You can also dictate 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 Minnesota 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.
Minnesota has pretty lenient criteria for a nonprofit’s registered agent, as found in the Registered Agent for Service of Process section of the Minnesota Statutes:
- Every entity that goes on file (i.e., registers) with the Secretary of State (both domestic and foreign) must appointed a registered agent
- The agent may be a natural resident of Minnesota 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 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 Minnesota nonprofits, that means filing the Articles of Incorporation.
This two-page document (plus an optional, brief business snapshot) requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Your nonprofit’s name
- Name and address of your registered agent
- Name, address, and signature of each incorporator
- Email address for official notices
- Name and daytime phone number of a person who can be contacted with questions about the form
All told, Minnesota has one of the simplest forms. And if you’ve made it this far, you probably already have all of the information on hand. Even the business snapshot is pretty simple; it asks a few questions about your industry, how many employees you have, the person who owns the business, and a few other things. The Snapshot is optional.
As long as you fill out all of the required information on the form, you’ll be set to go. If you prefer, you can also file this form online. The filing fee is a little higher for online documents because they’re regarded as expedited; the standard $70 paper filing fee jumps to $90 for online forms.
Processing speed: within 5 days of receipt
Expedited processing: $20 (online and in-person filings are automatically regarded as expedited)
Congratulations! Your nonprofit is now a recognized entity in Minnesota!
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. Minnesota state law does require that you meet at least once every year (you can dictate more meetings in your bylaws, if desired). Your bylaws can dictate all other terms for a meeting, such as where and when they occur, and how the meeting flows.
For example, you might require your president and CFO to report on the recent accomplishments and financial standing of the nonprofit. For more information on these meetings, please consult the Board Meetings Section of the Minnesota 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 Minnesota 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 Minnesota 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 exempts you from state and federal income taxes. However, if you want an exemption from sales taxes, you’ll have to complete an extra step. Minnesota allows for this exemption, but you’ll have to apply for the status. And after you’ve applied, you’ll still be expected to present each seller with a Certificate of Tax-Exempt Status in order to have taxes removed from your final purchase price. The certificate can only be used to buy products for the nonprofit; personal purchases do not apply.
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, Minnesota nonprofits with employees will need to account for withholding taxes and unemployment insurance taxes on both the state and federal levels.
There are also miscellaneous industry-specific taxes in Minnesota, such as fees for mining, gambling, minerals, 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 Minnesota Department of Revenue just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in Minnesota. 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 Minnesota’s requirements for each of those three areas.
A lot of states require you to register in order to solicit charitable contributions, and Minnesota is no exception. If you intend to raise funds for your cause, you’ll have to register with the Attorney General’s office before you do so. The registration fee is just $25, and it requires your board to draft and approve a resolution for the fundraising initiatives.
After your registration is complete, you’ll want to keep in mind that your registration needs to be renewed every year within six and a half months of the end of your nonprofit’s fiscal year. As long as you file on time, the renewal fee is just $25.
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; Minnesota requires every lobbyist to submit their registration within five days of their first day of lobbying. A person qualifies as a lobbyist if they make more than $3,000 from lobbying activities, spend more than 50 hours a month doing it, or spend more than $250 of their personal funds on lobbyist expenses.
For more information on lobbyist registration requirements, please consult the Lobbyist Registration page by the Minnesota Campaign Finance Board.
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.
Minnesota, 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. Minnesota upholds all federally regulated industry licenses, and Minnesota eLicensing 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.
Minnesota state law also requires you to get a worker’s compensation insurance policy if you have one or more employees working for your nonprofit. You can learn more about this requirement with the Minnesota Department of Labor and Industry.
Top Resources for Minnesota 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 Minnesota 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 Minnesota Council of Nonprofits. In their own words, the MCN exists “to meet the increasing information needs of nonprofits and to convene nonprofits to address issues facing the sector.” The MCN does require membership, but members have unique access to research, education, opportunities to advocate for your nonprofit, and more, so joining will be worth your while.