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 Tennessee 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 Tennessee? 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 Tennessee? 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 Tennessee nonprofit organization.
Starting a Tennessee Nonprofit: Step by Step
Technically, the process for creating a Tennessee 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 Tennessee state law.
Tennessee has pretty simple laws for nonprofit names:
- Your name cannot state or imply that your business conducts activities that are against state law or the purpose listed in your Articles of Incorporation
- You cannot include language that belongs to government-affiliated organizations (or that would lead someone to believe you are a government organization)
- If your name states or implies affiliation with or sponsorship by an organization, you must have written certification of the affiliation
- Your name must “be distinguishable upon the records” of the Secretary of State, or distinct from the names of other entities in the state
If you want more information on Tennessee business names, check out the Corporate Name Section of the Tennessee Code.
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 Tennessee 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 the Business Name Availability Search tool. Typically, if you type in 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 Application for Name Reservation form. This optional filing costs $20 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.
You can learn more through our guide on how to reserve a Tennessee 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.
Tennessee doesn’t have a bunch of rules about who can serve on the board. The only explicit requirement is that your board members must be natural persons (i.e., individuals), and you must have at least three of them serving at all times. Aside from that, your company bylaws can dictate all the terms for your directors: how they’ll be appointed, how many extra directors you’ll have, how they’ll be replaced, how long they’ll serve, how they’ll resign, and more.
3. Appoint a registered agent
Every Tennessee 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.
Tennessee has pretty lenient criteria for a nonprofit’s registered agent, as found in The Tennessee Code:
- Every entity that files with the Secretary of State (both domestic and foreign) must appoint a registered agent
- The agent must be an individual resident of the state 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 Tennessee nonprofits, that means filing the Nonprofit Corporation Charter.
This online document requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Your nonprofit’s name (and written consent to use a similar one, if applicable)
- Name and address of your registered agent
- When your fiscal year will end (usually December)
- Duration of the nonprofit
- Effective date for the filing
- Address of your primary executive office
- Name and address of each incorporator
- Provision for the distribution of your assets if the nonprofit dissolves
- Signature of each incorporator
All told, this form is pretty simple to complete; all you really have to do is fill in the requested information, and you’ll be set to go. The base filing fee for this document is $100, but there is a small surcharge for online filings.
Congratulations! Your nonprofit is now a recognized entity in Tennessee!
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. Tennessee does expect you to meet on a regular basis, but the exact terms—the how, the when, the where, and so on—will be dictated by your bylaws.
For example, yoru bylaws might require your president and CFO to report on the recent accomplishments and financial standing of the nonprofit at each meeting. Other nonprofits will take a different approach. For more information, please consult the Meetings and Action of the Board section of the Tennessee Code.
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 Tennessee 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 Tennessee 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 certificate exempts you from income taxes on the state and federal levels. But if you want an exemption from the state’s sales and use taxes, you’ll need to apply for it. Most nonprofits can receive this exemption, but they have to apply for a Certificate first. Even after the certificate is yours, you’ll need to present it whenever you make exempt purchases.
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, Tennessee nonprofits with employees will need to account for withholding taxes and unemployment insurance taxes on the state and federal levels.
There are also miscellaneous industry-specific taxes in Tennessee, such as fees for beer, tobacco, motor fuel, 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 Tennessee Department of Revenue just to be sure you’ve covered all of your responsibilities.
That’s the basic gist of nonprofit taxes in Tennessee. 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 Tennessee’s requirements for each of those three areas.
1. Fundraising
A lot of states require you to register in order to solicit charitable contributions, and Tennessee is no exception. Before fundraising, every nonprofit needs to register with the Secretary of State. Registration costs $10, and it must be renewed every year.
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. In Tennessee, every person lobbying (and the entities that hire them to lobby) is required to register by law. So your nonprofit will register, too. The fee for every entity or person that registers is $150.
Registered lobbyists are required not only to maintain their registration each year but also to complete an ethics course and submit regular reports of their expenditures and activities. For more information, please consult the Bureau of Ethics and Campaign Finance.
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.
In Tennessee, every business needs to obtain a general business license. Tennessee has two types: the minimal activity license and the standard business license. Businesses with $3,000-$10,000 in gross receipts will need to get the minimal activity license, and others get the standard business license. Fortunately, both license types cost just $15. You’ll register with your local municipality; find out how here.
Beyond that, a lot of Tennessee’s license requirements come at the industry level. For starters, the state upholds all federally regulated industry licenses, and the Regulations Search Tool is a great place to check out the state-level 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.
Tennessee 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 Department of Labor and Workforce Development.
Top Resources for Tennessee 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 Tennessee 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 Center for Nonprofit Management. In their own words, CNM “builds nonprofit capacity through consulting services, educational workshops and trainings, collective impact programming, networking opportunities, special events, member resources, and more.” CNM does require membership, but joining grants you several advantages, including both individual and organizational learning opportunities, resources, discounts, and more, so joining will be worth your while.