Practical Considerations in Creating Nonprofits, 0520 SCBJ, SC Lawyer, May 2020, #34

• Author: By Paula Birch Billingsley
• Position: Vol. 31 Issue 6 Pg. 34

Practical Considerations in Creating Nonprofits

No. Vol. 31 Issue 6 Pg. 34

South Carolina BAR Journal

May, 2020

By Paula Birch Billingsley

One “hazard of the job” that many lawyers face is a request for help in the formation of a nonprofit corporation. While the process may appear simple, it is often far more complicated than many lawyers anticipate. While it is tempting to assist with these requests, usually for a noble cause, it is generally more ethical for the attorney to defer such requests to someone more qualified.

In much the same light, there have been substantial changes to the relevant forms and options in the past few years. Even seasoned attorneys might be inclined to approach the process in the same way they have done in the past. This strategy may work for some lawyers, but may not be in the best interest of the client. Therefore, this article will discuss certain procedural and ethical issues that a lawyer will likely face in setting up a nonprofit corporation.

Initially, it is most important to realize that actually applying for the 501(c)3 part is not the first or even the second step of the process. It is also not anywhere near the end of the lawyer’s obligations.

The form fled with the Internal Revenue Service (IRS) to request tax exempt status is Form 1023.^[1] Essentially, there are three phases to guiding a client through a 501(c)3: before 1023, the IRS 1023, and after the 1023.

Before the 1023

There are several pieces of information the lawyer must know before the 501(c)3 application process (a 1023 or 1023EZ) can be started.

This list includes: •A name and specific purpose that is considered a nonprofit purpose.

• A physical address (not a P.O. Box) which will be required to be formally incorporated.

• Nonprofit specific email address.

• Three people to incorporate.

• One person to act as designated agent.

• A board of directors.

• Articles of Incorporation properly fled with the South Carolina Secretary of State to create the nonprofit.

• A federally issued EIN number.

Also, while it is not always required to be submitted, it is important for the board to adopt bylaws that state the purpose—which should be a tax-exempt purpose—and outline how the nonprofit will be organized and function. While old examples and contemporary online templates are a good basis, as with many legal documents, boilerplate language can be dangerous and useless to the people using them.

Good bylaws...