About Nonprofit & Charitable Organizations Law
Nonprofit and charitable organizations law governs how nonprofits are formed, governed, funded, and dissolved. It blends corporate law, tax rules, and charitable solicitation regulations to ensure organizations operate in the public interest. Compliance helps protect donors, beneficiaries, and leadership from legal risk and loss of tax-exempt status.
At the federal level, tax exemption is a core focus, with the Internal Revenue Code outlining which entities may qualify for 501(c)(3) status and how they must operate to maintain it. State laws add requirements on governance, reporting, and fundraising that vary by jurisdiction. For practical guidance, most nonprofits work with an attorney to tailor compliance to their mission and location.
Source: IRS definition and overview of charitable organizations and 501(c)(3) status.
Why You May Need a Lawyer
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Starting a nonprofit and applying for 501(c)(3) status.
A new animal shelter wants tax-exempt status to receive donations and grant funding. An attorney helps prepare the Articles of Incorporation, bylaws, and the Form 1023 application or determine eligibility for Form 1023-EZ. They also guide on initial governance structures to support future compliance.
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Maintaining compliance with state charity registrations and annual reporting.
A multi-state youth program fundraises in three states and must register in each state and file annual reports. Legal counsel helps set up ongoing tracking for registrations, renewals, and Form 990 requirements to avoid penalties.
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Governance and conflict of interest concerns.
A foundation with related-party transactions needs an independent board and a documented conflict of interest policy. An attorney drafts and reviews policies, board minutes, and related party transaction procedures to reduce private inurement risk.
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Mergers, affiliations, or dissolution.
Two small nonprofits consider a merger to consolidate programs and assets. Counsel conducts due diligence, negotiates terms, and files necessary documents with the appropriate state authorities to transfer assets lawfully.
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Lobbying, political activity, and donor restrictions.
A health advocacy nonprofit wants to lobby for policy changes while preserving 501(c)(3) status. An attorney helps classify activities, maintain compliance with IRS lobbying rules, and allocate expenses correctly.
Local Laws Overview
Internal Revenue Code Section 501(c)(3) - Federal tax exemption
Federal law under the Internal Revenue Code governs which organizations qualify for tax-exempt status and how donations are treated for donors. 501(c)(3) status supports charitable, religious, educational, and scientific activities across states. Organizations must meet ongoing federal filing and governance requirements to maintain exemption.
For authoritative information on 501(c)(3) status and related filing obligations, see the IRS definition and guidance.
New York Not-for-Profit Corporation Law (NPCL) and Not-for-Profit Revitalization Act
New York regulates not-for-profit corporations under the Not-for-Profit Corporation Law, enhanced by the Not-for-Profit Revitalization Act of 2013. The act modernized governance standards, including board independence and conflict of interest requirements, and clarified reporting obligations. The reforms took effect starting in 2014 and continue to shape governance practice in New York.
See official guidance at ny.gov/not-for-profit-law.
California Nonprofit Public Benefit Corporation Law
California regulates nonprofit public benefit corporations under the California Corporations Code, commonly cited as the Nonprofit Public Benefit Corporation Law. This framework covers incorporation, governance, fiduciary duties, and dissolution, and it interacts with state charitable solicitation and fundraising requirements. Many California nonprofits operate under Cal. Corp. Code § 5110 et seq.
For official statutory references and current text, see the California Legislative Information portal and the state Attorney General’s Charities Registry page: California Legislative Information and California AG Charities Registry.
Not-for-profit governance standards in New York emphasize independent boards and written policies to reduce governance risk.
Frequently Asked Questions
What is the difference between a nonprofit corporation and a for-profit charity?
A nonprofit corporation is created to further a social purpose and must reinvest any surplus to support that mission. A for-profit charity operates to earn profits for owners or shareholders. In practice, a nonprofit with 501(c)(3) status can receive tax-deductible gifts, which is not available to typical for-profit entities.
How do I start a nonprofit corporation in New York State?
You typically file Articles of Incorporation with the New York Department of State, adopt bylaws, appoint directors, and obtain an Employer Identification Number. An attorney helps ensure compliance with NPCL requirements and prepares governance documents that satisfy state standards.
What is 501(c)(3) status and who qualifies for it?
501(c)(3) status grants federal tax exemption to entities organized for charitable, educational, religious, or scientific purposes. Eligibility depends on organizational structure, purposes, and public benefit criteria. IRS guidance provides detailed eligibility and ongoing compliance requirements.
How long does the IRS take to approve a 501(c)(3) application?
Processing times vary by complexity and workload. Online filings via Form 1023-EZ are typically faster than the standard Form 1023, but not every organization qualifies for EZ. Expect several weeks to several months depending on the case.
Do I need to hire a lawyer to form a nonprofit organization?
While not legally required, a lawyer reduces the risk of errors in governing documents and IRS filings. An attorney can prepare initial bylaws, ensure proper corporate formalities, and guide you through the 501(c)(3) application process and state registrations.
How much does it cost to apply for 501(c)(3) status with the IRS?
The Form 1023 typically costs a filing fee of $600, while the shorter Form 1023-EZ fee is $275. Fees are non-refundable, and additional costs may arise from seeking legal counsel or state registrations.
What is a conflict of interest policy and why is it required?
A conflict of interest policy identifies situations where personal interests could affect business decisions. Many states require written policies for governance and related party transactions to protect the nonprofit and its donors. Regular disclosures and board training improve accountability.
Can a 501(c)(3) organization lobby for legislation?
Yes, but lobbying activities must be carefully tracked and limited to preserve tax-exempt status. Direct lobbying is restricted, and organizations must avoid political campaign intervention. An attorney can classify activities and allocate expenses properly.
What is the difference between a public charity and a private foundation?
A public charity generally has broad public support and fewer restrictions on grantmaking, while a private foundation is typically funded by a single source and faces stricter excise taxes and grantmaking rules. Each type has distinct annual filing and distribution requirements.
Do nonprofits need to file annual information returns with the IRS?
Most tax-exempt nonprofits file an annual Form 990, Form 990-EZ, or Form 990-N depending on size and type. Timely filing maintains good standing and avoids penalties. IRS guidance outlines which form applies to your organization.
Do I need to register with the state charity regulator before fundraising?
Many states require charitable registration before soliciting gifts from residents. Registration generally involves submitting organizational information, financial statements, and fees. State regulators enforce compliance and may impose penalties for misrepresentation.
How long does it take to dissolve a nonprofit and distribute assets?
Dissolution timelines vary by jurisdiction and asset distribution rules. A typical process includes board approval, creditors' notice, and state filings, followed by distributing remaining assets to another qualified organization. Legal counsel helps ensure proper ownership transfers and regulatory compliance.
Additional Resources
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Internal Revenue Service (IRS) - Charities and Nonprofits
Official federal guidance on tax-exempt status, filings, and 501(c)(3) requirements. IRS Charities and Nonprofits.
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New York State Not-for-Profit Law
State-level governance standards, Not-for-Profit Revitalization Act provisions, and related requirements. NY.gov Not-for-Profit Law.
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California Charities Registry - Attorney General
Official portal for the governance and registration of charitable organizations in California. California AG Charities Registry.
Next Steps
- Define your mission, programmatic scope, and expected funding sources to determine eligibility for tax-exempt status.
- Choose a state of incorporation and check name availability with the state Secretary of State or equivalent agency; prepare to file articles of incorporation and initial bylaws.
- Consult an attorney to draft governance documents, including a conflict of interest policy, whistleblower policy, and a fundraising plan aligned with your jurisdiction.
- Prepare and file the federal 501(c)(3) application (Form 1023 or Form 1023-EZ if eligible) and complete any required state charity registrations.
- Set up essential compliance systems: financial controls, recordkeeping, board meeting minutes, and annual reporting calendar.
- Plan for ongoing governance and audit readiness, including timelines for Form 990, independent audits if required, and annual filings.
- Establish a relationship with a qualified nonprofit attorney for periodic reviews, updates to policies, and urgent regulatory inquiries.
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