Starting a Nonprofit Corporation in Maryland 2023: Your Step-by-Step Guide

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How to Start a Nonprofit Corporation in Maryland

Are you passionate about making a difference in your community? Starting a nonprofit organization in Maryland can be a fantastic way to create lasting change and positively impact the lives of those around you. However, navigating the legal and regulatory requirements of starting a Nonprofit Corporation can be daunting, especially if you are new to the process.

This guide aims to simplify the process of forming a Nonprofit Corporation in Maryland by providing a step-by-step approach to ensure that your organization is set up for success from the start. At LLCBase, we understand that forming a nonprofit corporation can be an overwhelming experience, so we are here to help you achieve your goals every step of the way.

Start a Nonprofit Corporation

What is a Nonprofit Corporation

A Nonprofit Corporation is a legal entity organized and operated for purposes other than profit-making. The primary goal of a Nonprofit Corporation is to serve the public interest, promote a specific social cause, or support a charitable, religious, educational, scientific, or artistic mission. Unlike traditional for-profit corporations in Maryland, Nonprofit Corporations do not distribute profits to shareholders or owners. Instead, surplus funds are reinvested into the organization to further its mission and objectives. When starting a nonprofit corporation, consult the best formation service in Maryland to assist you.

Nonprofit Corporations are granted special tax-exempt status under Section 501(c) of the Internal Revenue Code in the United States, which exempts them from federal income taxes. Nonprofit Corporations may also be eligible for state and local tax exemptions. This tax-exempt status allows Nonprofits to receive tax-deductible donations and grants, making it easier for them to raise funds for their cause.

Some common types of Nonprofit Corporations include charities, foundations, social welfare organizations, trade associations, and religious institutions. These organizations play a vital role in society by addressing various social, environmental, and cultural issues, providing essential services, and enhancing the overall quality of life for communities.

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Steps to Form a Maryland Nonprofit Corporation

Below is an extensive overview of the steps to initiate a nonprofit corporation in Maryland:

Step 1. Choose a Name

The first step in starting a Nonprofit Corporation in Maryland is choosing an appropriate name for your organization. The name must be unique and distinguishable from other businesses registered in the state. You can conduct a preliminary name search on the Maryland Secretary of State‘s website to check the availability of your desired name. Additionally, the name should not include any prohibited words or phrases, such as “bank” or “insurance.”

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Step 2. Appoint Maryland Resident Agent

When forming a Nonprofit Corporation in Maryland, you must appoint Resident Agent in Maryland. The Resident Agent is responsible for receiving legal documents and correspondence on behalf of your organization. They must have a physical address in Maryland and be available during regular business hours. You can choose an individual or a professional Resident Agent service to serve in this role.

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Step 3. Appoint Board Members and Officers

In Maryland, a Nonprofit Corporation must have at least three board members responsible for overseeing the management and operations of the organization. The board must also elect officers, such as a president, secretary, and treasurer. It is important to choose individuals who are passionate about your organization’s mission and have the skills to carry out their duties effectively.

Step 4. File Articles of Incorporation

To officially form a Nonprofit Corporation in Maryland, you must file the Articles of Incorporation with the Maryland Secretary of State. The filing fee is $120 for filing in person and by mail. Your Articles of Incorporation must include the following required provisions:

  • Name of the Nonprofit Corporation
  • Purpose of the organization
  • A statement that the organization is a Nonprofit Public Benefit Corporation
  • Name and address of the Resident Agent
  • Statement of how the organization’s assets will be distributed upon dissolution

Optional provisions that can be included in the Articles of Incorporation are specific limitations or restrictions on the organization’s activities, indemnification of directors and officers, and any additional information that may be relevant to the organization.

Step 5. Apply for EIN

After filing your Articles of Incorporation, you must obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This nine-digit number is used to identify your organization for tax purposes and is required when applying for tax-exempt status or opening a bank account. You can apply for an EIN online, by fax, or by mail.

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Step 6. Draft Bylaws and Policy

Bylaws are the internal rules and procedures that govern the operation of your Nonprofit Corporation. They should outline the roles and responsibilities of board members and officers and the process for holding meetings and making decisions. Additionally, your organization should adopt a conflict of interest policy to properly address potential conflicts involving board members or officers.

Step 7. Hold an Organizational Meeting

Once you have drafted your bylaws and conflict of interest policy, you should hold an organizational meeting with your board members and officers. During this meeting, you will adopt the bylaws and conflict of interest policy, elect officers, and make any other initial decisions necessary for the operation of your Nonprofit Corporation.

Step 8. Obtain Licenses and Permits

Depending on the nature of your organization, you may be required to obtain business licenses and permits in Maryland to operate legally. This can include local business licenses, zoning permits, and any specific licenses required for your organization’s activities. Consult your Maryland Department of Assessments and Taxation for more information.

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Step 9. Register for Maryland State Taxation

While many Nonprofit Corporations are exempt from federal income tax, they may still be subject to Maryland state taxes. You must register with the Maryland Comptroller of Maryland and may be required to file annual tax returns.

Step 10. Register for Charitable Solicitation

If your Nonprofit Corporation plans to solicit donations from the public, you must register with the Maryland Office of the Attorney General. This registration is required before legally soliciting charitable contributions in Maryland.

Fee Schedule for Starting a Maryland Nonprofit Corporation

Here are the fees associated when starting a corporation in Maryland:

  • Articles of Incorporation Filing Fee: $120 for filing in person and by mail
  • Employer Identification Number (EIN) Application: Free
  • Form 1023 (Application for Recognition of Exemption) User Fee: $600 (for most organizations)
  • Form 1023-EZ (Streamlined Application for Recognition of Exemption) User Fee: $275
  • Statement of Information Filing Fee: $100 if domestic, $100 if foreign

Please note that these fees are subject to change, and additional fees may be applicable depending on the specific requirements of your nonprofit organization, such as obtaining licenses and permits. Always consult the respective agency websites and experts for the most up-to-date information.

Apply for 501(c)(3) Tax-Exempt Status

Once you have successfully formed your Maryland Nonprofit Corporation, the next crucial step is to apply for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This status allows your organization to be exempt from federal income taxes and is essential for receiving tax-deductible donations and grants.

  1. Prepare IRS Form 1023 or 1023-EZ: The first step in applying for 501(c)(3) tax-exempt status is selecting the correct application form. Most organizations will use IRS Form 1023, the Application for Recognition of Exemption. However, smaller organizations may be eligible to use the shorter Form 1023-EZ. This streamlined application is only available to organizations with annual gross receipts of $50,000 or less and total assets of $250,000 or less. Review the eligibility requirements on the IRS website to determine which form is most appropriate for your Nonprofit Corporation in Maryland.
  2. Submit the Application: After completing the appropriate application form, submit it with the required user fee to the IRS. The fee will depend on your organization’s size and financial status, so consult the IRS website for the most up-to-date information.Keep in mind that the IRS review process can take several months. During this time, maintain good records and continue to operate your Maryland Nonprofit Corporation in compliance with state and federal regulations. If your application is approved, you will receive a Determination Letter from the IRS confirming your tax-exempt status.
Maryland State Tax Exemption

In addition to federal tax exemption, your Maryland Nonprofit Corporation may also qualify for state tax exemption. To apply, submit Form Form 202, Exemption Application, to the Maryland Comptroller of Maryland and the required supporting documentation. If approved, your organization will be exempt from Maryland state income tax and may qualify for exemption from other state taxes.

Ongoing Compliance

After successfully forming your Maryland Nonprofit Corporation and obtaining tax-exempt status, it’s essential to maintain compliance with state and federal regulations. This includes filing annual reports, paying state and federal taxes, and maintaining good records.

  • File Annual Reports: Your Maryland Nonprofit Corporation must file an annual report with the Maryland Secretary of State each year. This report, known as the Statement of Information, is due yearly within a specific time frame based on your organization’s registration date. Failure to file the report on time may result in penalties and suspending your organization’s corporate status.
  • State Taxes: Even with tax-exempt status, your Maryland Nonprofit Corporation may still be responsible for certain state taxes, such as sales tax permits on goods and services sold by your organization. Consult the Maryland Comptroller of Maryland’s website for more information on state tax requirements.
  • Federal Taxes: While your organization may be exempt from federal income tax, you must still file an annual information return with the IRS. This is typically Form 990, 990-EZ, or 990-N, depending on your organization’s size and financial activity. Consult the IRS website for more information on which form your Maryland Nonprofit Corporation should file.
  • Maintain Good Records: Keeping accurate and up-to-date records is essential for maintaining your Nonprofit Corporation’s compliance with state and federal regulations. This includes financial records, meeting minutes, and other organizational documents. Strong recordkeeping practices will help you stay compliant and provide a solid foundation for your organization’s growth and success.

FAQs

What is a nonprofit corporation?
A nonprofit corporation is a type of organization formed for charitable, religious, educational, literary, or scientific purposes.
Do nonprofit corporations pay taxes?
Nonprofit corporations are exempt from federal and state income taxes, as long as they meet certain qualifications.
What are the benefits of starting a nonprofit corporation?
Some benefits of starting a nonprofit corporation include tax-exempt status, the ability to receive donations, and liability protection for the directors and officers.
What are the steps to starting a nonprofit corporation in Maryland?
The steps to starting a nonprofit corporation in Maryland include selecting a name, filing articles of incorporation, creating bylaws, electing a board of directors, obtaining tax exemptions, and registering with the state.
How do I choose a name for my nonprofit corporation in Maryland?
The name you choose for your nonprofit corporation in Maryland must be unique, distinguishable from other businesses or organizations in the state.
What are the requirements for filing articles of incorporation in Maryland?
To file articles of incorporation in Maryland, you must provide the name of your corporation, the purpose of your corporation, the type of business it will conduct, and the names and addresses of the incorporators.
What are bylaws and why are they necessary for a nonprofit corporation?
Bylaws are the rules that govern the operation of a nonprofit corporation. They are necessary because they provide a framework for the organization’s officers, directors, and members to follow.
What is the role of the board of directors in a nonprofit corporation?
The board of directors is responsible for overseeing the operations and affairs of the nonprofit corporation. They are responsible for making major policy decisions, approving budgets, and selecting and evaluating the organization’s management.
How do I obtain tax exemptions for my nonprofit corporation in Maryland?
To obtain tax exemptions for your nonprofit corporation in Maryland, you must file for exemption with the Internal Revenue Service and the Maryland State Department of Assessments and Taxation.
What are the requirements for registering a nonprofit corporation in Maryland?
To register a nonprofit corporation in Maryland, you must obtain a tax identification number, register with the state tax agency, and obtain any required business licenses.
Can I get help start my nonprofit corporation in Maryland?
Yes, there are many resources available to help you start your nonprofit corporation in Maryland. Some resources include the Maryland Association of Nonprofit Organizations, SCORE Mentors, and the Maryland Nonprofits Foundation.
How long does it take to get nonprofit corporation status in Maryland?
It typically takes about 2-4 weeks to receive nonprofit corporation status once you have filed all the necessary paperwork with the state.
Can I start a nonprofit corporation on my own in Maryland?
Yes, you can start a nonprofit corporation on your own in Maryland. However, it is recommended that you seek help and guidance from experts.
What is the difference between an unincorporated nonprofit association and a nonprofit corporation in Maryland?
An unincorporated nonprofit association is a group of individuals who come together for a common nonprofit purpose. A nonprofit corporation is a separate legal entity that exists independently from its owners and has various legal and tax benefits.
Can a nonprofit corporation earn income in Maryland?
Yes, nonprofit corporations can earn income in Maryland. However, any income generated by the corporation must be used exclusively for charitable purposes, and the corporation cannot distribute profits to its owners.
How much does it cost to start a nonprofit corporation in Maryland?
The cost to start a nonprofit corporation in Maryland varies depending on several factors such as filing fees, legal fees, and organizational expenses.
What are the steps a nonprofit corporation must take to operate legally in Maryland?
The steps a nonprofit corporation must take to operate legally in Maryland include complying with tax and regulatory requirements, status preservation, and annual report filing.
Can a nonprofit corporation have employees in Maryland?
Yes, a nonprofit corporation can have employees in Maryland. However, the nonprofit corporation must still comply with all federal and state employment laws, such as the minimum wage law.
What kind of insurance does a nonprofit corporation need in Maryland?
A nonprofit corporation in Maryland may need several types of insurance, including general liability insurance, directors and officers insurance, and property insurance.
Can a nonprofit corporation solicit donations in Maryland?
Yes, a nonprofit corporation can solicit donations in Maryland. However, they must follow strict regulations and obtain any necessary permits.
How can I find nonprofit corporations that are already operating in Maryland?
To find nonprofit corporations already operating in Maryland, you can conduct research online at the Maryland State Department of Assessments and Taxation website, Guide Star, and Maryland Nonprofits.
Can a foreign nonprofit corporation operate in Maryland?
Yes, a foreign nonprofit corporation can operate in Maryland. However, the corporation must first obtain a foreign qualification from the state of Maryland.
What is a fiscal sponsor in Maryland?
A fiscal sponsor in Maryland is a nonprofit corporation that provides support services, such as financial management and legal oversight, to other nonprofit organizations who have not yet attained 501(c)(3) status.
Can a nonprofit corporation be sued in Maryland?
Yes, a nonprofit corporation can be sued in Maryland. However, there are limits to the legal liability of the organization, directors, and officers.
What is board governance in Maryland?
Board governance in Maryland refers to the process of overseeing a nonprofit corporation’s charitable activities and selecting new board members who can improve the organization’s ability to accomplish its mission.
What happens if a nonprofit corporation loses its tax-exempt status in Maryland?
If a nonprofit corporation loses its tax-exempt status in Maryland, it will need to reapply to regain its status, and may be subject to penalties and back taxes.
Can a nonprofit corporation in Maryland merge with another nonprofit corporation?
Yes, a nonprofit corporation in Maryland can merge with another nonprofit corporation. However, this process requires a plan of merger and approval from the state of Maryland.
What are the annual requirements for nonprofit corporations in Maryland?
The annual requirements for nonprofit corporations in Maryland include filing an annual report with the Department of Assessments and Taxation and renewing any business licenses that are required.
Does Maryland offer any special benefits to nonprofits?
Yes, Maryland offers a number of benefits for nonprofit organizations, including tax exemptions and streamlined incorporation procedures.
What type of nonprofit should I form in Maryland?
There are several types of nonprofits you can form in Maryland, including charitable organizations, religious organizations, and educational organizations.
What are the requirements for incorporating a nonprofit in Maryland?
To incorporate a nonprofit in Maryland, you must have a unique name, at least one director, and a designated agent for service of process.
What is a unique name?
A unique name is a name that is not already in use by another Maryland corporation or reserved for use.
Can I use a name that is similar to another nonprofit in Maryland?
To avoid confusion, it’s best to choose a unique name that does not closely resemble the name of any other Maryland corporation or nonprofit.
What is a designated agent for service of process?
A designated agent for service of process is a person or entity who agrees to receive legal notices and summons on behalf of the corporation.
Do I need a board of directors to incorporate a nonprofit in Maryland?
Yes, you must have at least one director to incorporate a nonprofit in Maryland.
Can I be the director of my own nonprofit in Maryland?
Yes, you can be the director of your own nonprofit in Maryland.
Can a nonprofit corporation in Maryland have members?
Yes, nonprofit corporations in Maryland can have members if the articles of incorporation provide for them.
What are articles of incorporation?
Articles of incorporation are legal documents filed with the state that create a corporation.
How do I file the articles of incorporation for a nonprofit in Maryland?
You can file the articles of incorporation either online or by mail with the Maryland Department of Assessments and Taxation.
What information needs to be included in the articles of incorporation?
The articles of incorporation must include the name of the corporation, the purpose of the corporation, the name and address of the designated agent for service of process, and the names and addresses of the initial directors.
Do I need to include specific language in the articles of incorporation to qualify for tax-exempt status in Maryland?
There is no specific language required in the articles of incorporation to qualify for tax-exempt status in Maryland, but they must include specific provisions required by Maryland law.
What must the purpose of the corporation be in the articles of incorporation?
The purpose of the corporation must be a lawful purpose allowed under Maryland law, and it must not be for the purpose of earning profits.
What are the tax benefits of incorporating a nonprofit in Maryland?
Nonprofit corporations in Maryland are exempt from most state income and property taxes.
What is the difference between federal tax-exempt status and state tax-exempt status?
Federal tax-exempt status enables a nonprofit to be exempt from federal income taxes and allows donors to make tax-deductible contributions. State tax-exempt status exempts nonprofits from certain state taxes.
Can I apply for federal tax-exempt status for my Maryland nonprofit?
Yes, you can apply for federal tax-exempt status by filing Form 1023 with the IRS.
How long does it take to receive federal tax-exempt status after filing Form 1023?
Once your application is complete, it usually takes between three and six months to receive a decision from the IRS.
What annual reporting requirements do nonprofit corporations in Maryland have?
Nonprofit corporations in Maryland must file an annual report with the Maryland Department of Assessments and Taxation by the due date, which is based on the date of incorporation.
What happens if I don’t file the annual report on time?
If you don’t file the annual report on time, your nonprofit will fall out of good standing and could face fines or other penalties.
Can I remove a director from my Maryland nonprofit board?
Yes, a director can be removed from the board of directors by a vote of the members or board of directors.
How many directors must a Maryland nonprofit have?
A Maryland nonprofit must have at least one director.
Can someone be both a director and an officer of a Maryland nonprofit?
Yes, a person can serve as both a director and an officer of a Maryland nonprofit.
What are the officer positions of a Maryland nonprofit corporation?
The officer positions of a Maryland nonprofit corporation include president, secretary, and treasurer.
What is the role of the president of a Maryland nonprofit corporation?
The president is the chief executive officer of the nonprofit corporation and is responsible for overseeing the organization’s operations.
Can a Maryland nonprofit conduct regular business activities for profit?
Maryland nonprofits are allowed to engage in regular business activities for profit, as long as the profits are reinvested in the corporation’s charitable purposes and not distributed to individuals.
Can directors and officers of a Maryland nonprofit be compensated for their services?
Yes, directors and officers of a Maryland nonprofit can be compensated for their services, but the compensation must be reasonable and justified.
Are there any special requirements for a nonprofit corporation to qualify for public charity status in Maryland?
Yes, a nonprofit corporation must meet certain requirements to qualify for public charity status in Maryland, including mandatory public support and a restrictions on the level and type of income generated.

Also Read

Why You Should Start Maryland Nonprofit

First and foremost, forming a nonprofit organization allows you to address a social or community need that you are passionate about. Whether it is education, health, environmental conservation, or any other cause close to your heart, a nonprofit provides the means to actively work towards its betterment. By starting a nonprofit in Maryland, you can work towards improving the lives of the community members, making a lasting impact for generations to come.

Additionally, Maryland offers a plethora of resources and support to help budding nonprofits thrive. The state is home to numerous grant-making foundations, organizations that freely provide financial assistance to nonprofits aligned with their respective missions. Furthermore, local government agencies actively collaborate with and support nonprofits, facilitating access to valuable information, networking opportunities, and, at times, even funding. The supportive atmosphere in Maryland truly sets the stage for nonprofit success.

Moreover, the tax benefits associated with forming a nonprofit in Maryland make it an extremely attractive option. Nonprofits are exempt from paying federal and state taxes on income generated from their charitable pursuits. This means that the resources they receive can be wholly utilized towards advancing their cause, rather than being whisked away by taxes. As Maryland levies taxes on unrelated business income from nonprofits, this exemption further encourages organizations to channel their efforts more wholeheartedly towards their community-driven goals.

Another advantageous aspect of starting a nonprofit in Maryland is the ease with which you can gain tax-exempt status. Achieving a 501(c)(3) status from the Internal Revenue Service (IRS) allows nonprofits to accept tax-deductible donations, making them more appealing to potential donors. Maryland’s strong nonprofit infrastructure, together with its proximity to Washington D.C., expedites the process of gaining tax-exempt status. Potential donors are thereby encouraged to contribute to these organizations, knowing their contributions will make the most significant impact possible.

Furthermore, forming a nonprofit in Maryland also enables you to join a vibrant community of like-minded individuals. Collaborating with passionate individuals and organizations who share your goals and values can lead to partnerships, shared resources, and amplified reach. The collective efforts fostered in this community can achieve far more than an individual would alone, enabling the pursuit of even loftier goals.

In conclusion, starting a nonprofit organization in Maryland provides an exceptional avenue to make a meaningful difference in your community. The resources, support, and tax benefits offered by the state create an environment conducive to the success of community-driven initiatives. Embracing this opportunity not only allows you to pursue a cause you are passionate about but also brings you into a thriving community of like-minded individuals working together to create a brighter future. Don’t just dream of change—act upon it, and start your Maryland nonprofit today.

Conclusion

Forming a Maryland Nonprofit Corporation and maintaining compliance with state and federal regulations are crucial to creating a successful organization. By ensuring your organization remains compliant, you can focus on fulfilling your mission and serving your community without worrying about legal or financial setbacks.

While this guide provides an overview of forming a Nonprofit Corporation in Maryland, it’s important to remember that each organization’s situation is unique. The process of starting a for-profit corporation is different from a nonprofit corporation. Seek the advice of experienced professionals, such as attorneys, accountants, or nonprofit consultants, to ensure your organization is set up for success from the start. Check LLCBase for more guides and resources for starting your business.

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