Published in the Union Leader (4/25/2016)
Q. My neighbors and I routinely organize charitable fundraising events in our town. Now that the weather is warmer, we are beginning to host events and have thought about using social media to attract more volunteers and support. As we grow, should we consider becoming a nonprofit in New Hampshire?
A. Yes. An unincorporated charitable organization may benefit from incorporating as a nonprofit corporation, described in New Hampshire as a “voluntary corporation.” Incorporating as a nonprofit limits the liability of members involved in operating the organization. It also creates the ability to receive certain grants, permits the organization to qualify for exemption from federal income taxation and the New Hampshire Business Profits Tax, provides a framework to shape and govern the organization, and produces possible paths for obtaining credit and insurance.
The New Hampshire Secretary of State website has several helpful nonprofit resources including answers to frequently asked questions, links to applicable nonprofit laws, and links to basic voluntary corporation formation documents. (https://www.sos.nh.gov/corporate/nonprofitleader.htm).
The IRS website provides information about the requirements and procedures to qualify a nonprofit as an IRS tax-exempt entity (https://www.irs.gov/). When creating a voluntary corporation, consult an attorney familiar with tax-exempt entities to ensure that you comply with all Internal Revenue Service requirements during the incorporation process.
Under New Hampshire law, the incorporation process for nonprofits includes:
1) Reserving a corporate name;
2) Filing articles of agreement with the secretary of state and your town clerk;
3) Drafting corporate governance documents such as bylaws and conflict of interest policies; and
4) Outlining post incorporation requirements to maintain the entity properly.
Incorporation as a voluntary corporation does not automatically qualify an organization as a public charity under federal law.
To qualify as a public charity, an entity must be organized and operated for one of the charitable purposes specifically set forth in Section 501(c)(3) of the Internal Revenue Code. Attaining public charity status may prove a substantial benefit as donations to a public charity are tax deductible to the donor, creating a clear advantage if the organization receives donations from the public. Because public charity rules can be complicated, you should consider consulting a tax attorney or certified public accountant to assist with the application process.
In sum, unincorporated charitable organizations generally benefit from incorporating in New Hampshire and, if appropriate, applying for recognition as a public charity.
Joshua Lanzetta can be reached at joshua.lanzetta@mclane.com.
Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association. We invite your questions of business law. Questions and ideas for future columns should be addressed to: McLane Middleton, 900 Elm Street, Manchester, NH 03101 or emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.