Why form a nonprofit business in Delaware?

A non-profit corporation is generally organized for some societal purpose. It focuses specifically on activities other than making a profit. It would be typical to find a not-for-profit organization performing some kind of charitable, educational or religious work.  In exchange of striving for the greater good, a nonprofit organization usually receives an exemption for State and Federal income taxes and they typically don’t pay state or federal taxes income taxes on any profits it makes.

As a business entity, nonprofit corporations generally offer certain financial benefits:

• Federal and state income tax-exemptions, if applied for.

• Eligibility to receive public and private grants.

• Tax-deductible donations for individual supporters of eligible 501(c)(3) nonprofit organizations.

Nonprofit corporations need to follow organizational rules very similar to a regular corporation. They also need to follow special rules about what they do with any profits they earn. For example, they can’t distribute profits to members or political campaigns.

The State of Delaware allows for the creation of a non-profit corporation by the filing of a Certificate of Incorporation of an Exempt Corporation.

A Delaware Exempt Corporation offers benefits similar to that of a for-profit corporation formed in Delaware. Those range from advantages built into the Delaware General Corporation Law (the “DGCL”) to the flexibility of the Delaware corporate formation process. They also include desirable incentives such as indemnification of directors and officers as well as low start-up and annual maintenance costs.

Four good reasons to incorporate an Exempt Corporation in Delaware:

  1. Limited Liability Protection – directors and officers are typically not personally responsible for the nonprofit’s debts and liabilities.
  2. Any number of different kinds of business can be transacted under one corporate roof.
  3. Corporate records need not be kept in Delaware.
  4. Low costs to start up and maintain; State filing fee is only $89.00 & Exempt Corporations are only required to file an annual report- they do not pay franchise taxes!

Nonprofits that file with the IRS to get tax exemption can receive substantial benefits as well.

Who can form a nonprofit business in Delaware?

Anyone anywhere in the world is permitted to file the required documentation with the Delaware Division of Corporations in order to form a Delaware Exempt Corporation. Similarly, the requirements for Incorporators in Delaware are broad; Any person or entity, singly or jointly with others, regardless of where they live, are domiciled or incorporated, may organize or incorporate a Delaware corporation by filing a properly executed Delaware certificate of incorporation.

What is needed to form a nonprofit business in Delaware?

In order to register a corporation in Delaware, you need to file the appropriate paperwork with the Division of Corporations, called a Certificate of Incorporation, as well as pay the required filing fees. Upon proper receipt, the State will process the Certificate of Incorporation based on workflow and the priority selected at the time of the filing. In anywhere from 1 hr to about 10 business days, a date and time stamped copy of the Delaware certificate of incorporation, along with any other certificates requested, will be returned to the submitter.

After the company is incorporated, additional actions need to take place in order to maintain the corporation. Among other things, Delaware exempt corporations should review the following:

• Appoint and/or hold an initial meeting of directors

• Adopt bylaws

• Other State or Federal filing requirements needed to achieve their non-profit or tax-exempt status

Remember– Incorporating an Exempt Corporation in Delaware simply establishes it as a legal entity. To become a tax-exempt nonprofit organization, it is required to file for and be approved for tax-exempt status with the IRS.

How to form a nonprofit business in Delaware

Determine if you will draft and file your own certificate of incorporation or if you will have someone else do it or help with it. Though that statement seems relatively straightforward, there are many ways to get from A to Z, and options exist that fit every personality and every budget.

Here are three ideas to consider for drafting your Delaware certificate of incorporation:

DIY

Do it yourself through education, organization, and a bit of document drafting. Based on the feedback our experience staff receives, beginners sometimes find the DIY option overwhelming and have reported that in the end they generally didn’t save much money and spend a great deal of time that could have been allocated elsewhere. This option definitely isn’t for everyone. That said, depending on the individual, you may find it a rewarding experience.

Use a Service Company

There are several good service companies out there who can help you incorporate. Most of them will charge a fair price to do the preparation and filing of your certificate of formation. Hiring one to handle the bureaucratic and statutory requirements of starting your LLC can end up saving you time and expense, allowing you to focus on what you are passionate about – running your business. That said, you should do your research carefully to make sure you select a service company that will meet your needs now and in the future. In general, a service company should be accessible, reasonable, and back up their work with a guarantee. Most of all they should be able to add value. Give them a call or send them an email. It’s a great way to gauge how they will respond when you really need them!

Hire an Attorney or CPA

Never underestimate the value that a good attorney or CPA can add. Not only can they give you legal and tax advice, in the beginning, they can continue to add value over the lifetime of your corporation. If a retainer fee or budgetary issues are of concern when forming a startup corporation, explore how you can still build a relationship with these professionals to receive advice in the areas of planning that are critical for you.

Many times it is not one solution, but a combination of all above. It is reasonable to say that some DIY research is necessary. Then leverage the experience and resources of a good service company that can help start, grow and maintain your corporation, as well as the advice of your attorney or CPA in any areas that are necessary.

Calculate the costs of starting a corporation in Delaware. The initial charge for incorporating in Delaware can be as low as $89.00. An Exempt Corporation does not have to pay the annual franchise tax; however, they must still file a Delaware Annual report and pay the $25 annual report filing fee!

What else can impact the cost to file a certificate of incorporation in Delaware? Here are some of the many things that may impact your total costs:

Total Document Pages

If the document is more than 1 page, you must submit $9 for each additional page.

Additional Certificates

You will receive a stamped “Filed” copy of the submitted document. At the time of filing, certified copy or a certificate of good standing may be requested for an additional $50. Apostilles are also available for $80.

 Processing Speed Requested

Expedited services are available, ranging from 24 to 1-hour processing.

Ultimately, State fees can vary, depending on your specific needs. Please contact our office concerning your specific needs so we can assist you in determining your total costs. Additionally, consult our fee chart.

Submit your filing with the Delaware Division of Corporations. Completely fill out a required filing memo to accompany your certificate of incorporation. You can send it to the State by mail or courier delivery, or drop it off at the front desk if you happen to be in Dover. Agents of Delaware is one of a handful of commercial registered agents who have a direct electronic connection to the Delaware Division of Corporation. If we are assisting you with your certificate of incorporation, electronic filing is included at no additional cost!

Once you’ve received the date and time stamped copy of the certificate of incorporation back from the State, your corporation officially exists. While this is true, there may be some other steps you need to consider for your specific circumstances. Such as:

  • Form 1023 must be completed and filed with the IRS in order to receive tax-exempt status
  • Qualification, Foreign registration, or other jurisdictional filings needed where you are transacting business
  • Business licenses
  • Professional licensing, or other regulatory requirements
  • Obtaining an EIN
  • Opening a bank account
  • Insurance
  • Bookkeeping, accounting, legal, technical or other professional services

Remember, everyone’s circumstances are unique. The above list is intended to only bring to your attention some of the factors to consider when starting a corporation in Delaware and is not all-inclusive.

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