Drafting Your Non-Profit’s Organizational Documents with an Eye Towards 501(c)(3) Status

October 16, 2015

By Caitlin Steinke, Law Firm of Tina Foster

The most common reason for the delay in receiving 501(c)(3) status is the absence of certain provisions in non-profits' Articles of Incorporation and Bylaws. This article identifies the provisions that should be included in the organizational documents in order to obtain 501(c)(3) status.

Your non-profit's Articles of Incorporation must state an exempt purpose that complies with section 501(c)(3).

When completing the IRS Form 1023 to apply for 501(c)(3) status, you will need to confirm that your non-profit's Articles of Incorporation contain required provisions to meet the organizational test under section 501(c)(3). Your non-profit's Articles of Incorporation must state an exempt purpose(s), such as charitable, religious, educational, and/or scientific. When completing the "purpose" provision in your organization's Articles of Incorporation, it does not hurt to make explicit reference to section 501(c)(3). For example, your non-profit's stated purpose could be, "Charitable activities within the meaning of section 501(c)(3) of the Internal Revenue Code."

Your non-profit's Articles of Incorporation must include a dissolution clause that complies with section 501(c)(3).

Your organization's Articles of Incorporation must state that upon dissolution of the organization, the organization's remaining assets must be used exclusively for exempt purposes, such as charitable, religious, educational, and/or scientific purposes. Again, it does not hurt to make explicit reference to section 501(c)(3) when writing your non-profit's dissolution clause. For example, the dissolution clause could state, "Upon dissolution of this organization, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code."

Your non-profit's Bylaws should include a conflict of interest policy that complies with section 501(c)(3).

Having a conflict of interest policy is recommended, but not required, to obtain 501(c)(3) status. However, if you state in your Form 1023 that your organization does not have a conflict of interest policy, you will be required to attach an explanation of the procedures your organization will follow to ensure that conflicts of interest do not occur within your organization. So, if you have to come up with a conflict of interest policy anyway, you might as well include one in your organization's initial Bylaws. Plus, it's good practice for a non-profit to have a formal conflict of interest policy from the beginning. The Form 1023 instructions provide a sample conflict of interest policy - you should design your organization's policy based on that sample, to ensure that it will be in compliance with section 501(c)(3).

You can amend your existing organizational documents to comply with section 501(c)(3).

If your organization's existing Articles of Incorporation and/or Bylaws do not contain the provisions required to obtain 501(c)(3) status, you will need to amend them before submitting your Form 1023. It's not the end of the world, but it will delay the process of obtaining 501(c)(3) status for your non-profit. For that reason, it is good practice to ensure that the initial versions of these organizational documents include the required provisions.

 

This article provides only general information, and is not intended as legal advice. Please consult with an attorney for guidance on specific legal matters.