How to Form a Delaware Nonprofit Corporation and Apply for 501(c)(3) Status
When deciding which entity type to form in Delaware, some clients inquire about establishing an Exempt Corporation, also known as a Delaware Non-Profit Corporation. In many cases, these organizations are formed to advance a specific mission. Delaware Non-Profit Corporations may be organized for a variety of charitable, educational, religious, scientific, literary, and other purposes. Therefore, rather than distributing profits to shareholders, clients generally form this entity type with a mission-driven goal to support a specific cause and to raise funds to help operate the organization and further the purpose for which the non-profit was formed.
Starting a Nonprofit in Delaware
Delaware's well-established corporate laws have made it a popular jurisdiction for many types of organizations, including non-profit corporations. As a result, some non-profit organizations choose Delaware as their state of incorporation while pursuing their charitable, educational, religious, scientific, literary, or other organizational objectives.
To form a Delaware Non-Profit Corporation, a Certificate of Incorporation must be filed with the Delaware Secretary of State for approval, as the entity is generally formed as a Delaware Non-Stock Corporation electing Non-Profit Status. The Certificate includes basic information about the organization, such as the company name and the name and address of its Delaware Registered Agent.
Drafting a Mission Statement
While Delaware law does not generally require a mission statement to be listed within the Certificate of Incorporation, organizations seeking federal tax-exempt status under Section 501(c)(3) of the Internal Revenue Code typically need to include specific language within the Certificate of Incorporation pertaining to the company’s mission and IRS subsection under which the organization intends to qualify. An example of this language is as follows:
“The Corporation shall be a nonprofit corporation. The Corporation is organized and shall be operated exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code (the "Code"). The purpose of this non-profit organization is:”
The mission statement explains the organization’s purpose and objectives and helps define the mission the company is being formed to support. While a mission statement can be simple and basic, clients often choose to include a more detailed statement that better reflects the company’s overall goal.
An example of a mission statement that can be added to the document is:
“To help children succeed in life by providing support, guidance, and opportunities that promote personal growth and achievement. The Corporation strives to create a positive impact by encouraging education, character development, and lifelong success.”
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Applying for 501(c)(3) Tax Status
Once the Delaware company is formed, the organization may choose to apply for 501(c)(3) status by filing the appropriate application directly with the IRS, typically using Form 1023. It is important to understand, however, that this filing is separate from forming the Delaware Non-Profit Corporation with the state. The Delaware Certificate of Incorporation should include the proper language explaining the organization’s mission and identifying the IRS subsection under which the organization intends to qualify when applying for tax-exempt status with the IRS.
The form must be filed with the IRS within 15 months of the company’s formation. Some organizations may also be eligible to apply for 501(c)(3) status using Form 1023-EZ, which is a simplified version of the IRS application. However, not every organization will qualify to use this form. The IRS requires organizations to review the Form 1023-EZ Eligibility Worksheet to determine whether they are eligible. If the organization does not qualify for Form 1023-EZ, it may need to file the full Form 1023 instead.
Clients often work directly with the IRS or consult with a tax professional for assistance with the federal application and approval process for obtaining the tax status for the company. It’s important to note that the Delaware Division of Corporations will not approve the election or keep a record of whether your company has elected a specific tax status from the IRS.
If looking to form a Delaware Non-Profit Corporation or if you have any questions, contact us today at 1-302-645-7400 or 1-800-345-2677 ext. 6900 or via email at info@delawareinc.com.
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