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The government likes tax money. Consequently, setting up a tax-exempt nonprofit corporation takes significantly more time, effort, and paperwork than forming a for-profit business entity. The rewards that come from gaining tax-exempt status, however, are well worth the effort. Nonprofit corporations in Oklahoma provide assistance to the needy, educate our citizens, conduct important research, and help solve many other problems facing our state.

This article briefly outlines how to form a nonprofit corporation in Oklahoma and gain both federal and state tax exemptions. It is not intended to be an exhaustive list; rather, it is intended to be a basic primer on the steps involved. Please contact the lawyers at Franden, Woodard, Farris, Quillin & Goodnight if you have any questions or would like assistance in setting up your nonprofit.

1. Define the Purposes and Goals of the Nonprofit. Most nonprofits are formed with an eye toward gaining federal income-tax exemption under section 501(c)(3) of the Internal Revenue Code (IRC). In order to qualify for tax exemption under section 501(c)(3), a corporation must usually be formed exclusively for religious, charitable, scientific, literary, or educational purposes.

2. Choose a Name for the Nonprofit. The name must be unique. It may not be too similar to the name of an existing Oklahoma business or an out-of-state business registered or qualified to do business in the state. The name must contain one of the following words or abbreviations: association, company, corporation, club, foundation, fund, incorporated, institute, society, union, syndicate, limited, co., corp., inc., or ltd.

3. File a Certificate of Incorporation with the Oklahoma Secretary of State. You may file the Certificate online at www.sos.ok.gov. Special care should be taken in drafting the “Purpose” section of the Certificate. Although for-profit entities may be formed for any legal purpose, entities seeking 501(c)(3) status must be formed for tax-exempt purposes. Additionally, you will need to select a registered agent, provide a physical address for the corporation, list at least 3 incorporators, and indicate the number of directors that will serve on your nonprofit’s Board of Directors. The filing fee is $25.

4. Prepare Bylaws for the Nonprofit. The provisions in the bylaws provide the rules, regulations, and procedures that determine how the affairs of the nonprofit will be conducted. Among the various provisions that should be included are those that dictate how corporate meetings are noticed and held; describe how directors and officers are elected; and outline the duties of the nonprofit’s directors and officers. Importantly, the bylaws should include a section indicating to the IRS that the corporation was formed for tax-exempt purposes.

5. Apply for an EIN. An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify your nonprofit. An EIN is similar to a social-security number for an individual. All nonprofits should apply for an EIN, even those without employees. You may obtain an EIN online for free at www.irs.gov.

6. Apply for Federal Tax Exemption. Most nonprofits will seek 501(c)(3) status and fill out IRS Form 1023. As you might expect, this is where the bulk of the red tape and paperwork lies. Form 1023 asks you to describe the structure, activities, and finances of your nonprofit in great detail. You can expect to spend at least 10 hours filling out Form 1023. When filling out Form 1023, a nonprofit should seek to be classified as a “public charity,” and not a “private foundation.” Private foundations are subject to strict operating rules and regulations and receive less favorable tax benefits. The filing fee for Form 1023 is $850 if average annual gross receipts are expected to exceed $10,000 in the nonprofit’s first 4 tax years. The filing fee is $400 if average annual gross receipts are expected to be less than $10,000.

6. Set up a Corporate Records Book. A corporate records book holds the nonprofit’s important papers, including the Certificate of Incorporation, bylaws, minutes of meetings, and tax-exemption applications. You can use a three-ring binder or buy a corporate kit. Kits are available online and at office-supply stores.

7. Hold the First Board Meeting. At a typical initial meeting of the Board of Directors, a Chairman of the Board is elected, bylaws are adopted, and officers are elected and authorized to act on behalf of the nonprofit. Minutes of the first meeting should be recorded and kept in the corporate records book.

8. Apply for Oklahoma Sales-Tax Exemption. The application can be found online here: http://www.tax.ok.gov/btforms/PktE.pdf. The Oklahoma Tax Commission typically requires you to provide a letter from the IRS indicating that you are exempt from federal income tax before you can gain exemption from state sales tax. Note, however, that not all entities that are exempt from federal income tax qualify for sales-tax exemption in Oklahoma.

9. Register to Solicit or Accept Charitable Contributions. If your nonprofit is like most nonprofits, you’ll want to solicit and accept contributions. Before you do so, you must register with the Oklahoma Secretary of State. The registration form can be found here: http://www.sos.ok.gov/forms/fm0101.pdf. The registration fee is $65.00 if you anticipate contributions over $10,000. The fee is $15.00 if you do not expect contributions to exceed $10,000.

10. File Annual Registrations. Most nonprofits must file an IRS Form 990, 990-EZ, or 990N annually no later than the 15th day of the fifth month after the end of each fiscal year (within four and a half months). Oklahoma Tax Commission Form 512E must be filed within the same time frame. Finally, the registration to solicit and accept contributions must be renewed annually with the Secretary of State.