by Richard Keyt (masters degree in tax law & 480-664-7478) and Richard C. Keyt (masters degree in accounting & former CPA & 480-664-7472) Arizona nonprofit corporation & charitable organization attorneys. Call if you have questions. We are happy to answer at no cost to you.
This article explains from A to Z how to start a nonprofit organization in Arizona. Although we do not recommend that anybody except an experienced nonprofit organizations attorney form a nonprofit organization in Arizona, we know that many people do form do-it-yourself nonprofit corporations. We wrote this article for two reasons:
1. To give do-it-yourselfers a road map on how to start an AZ nonprofit organization, and
2. To convince some people to hire us to form their Arizona nonprofit corporation after they read this article and learn just how much is involved.
To form nonprofit organizations in AZ, you merely:
- File articles of incorporation with the Arizona Corporation Commission (the “ACC”), and
- Publish the articles of incorporation in a newspaper of general circulation for three consecutive publications.
Despite this relatively easy two-step process, there are a number of additional tasks that should be performed before and after incorporation. The following is a checklist and explanation from A to Z of the tasks necessary to form an Arizona nonprofit corporation. If you want to form an Arizona for profit corporation, see our article entitled “How to Incorporate in Arizona.”
For a summary of the characteristics of the seven types of entities commonly used in Arizona to operate businesses and hold assets, see “Types of Entities for New Arizona Companies.” Continue reading our Arizona Nonprofit Corporation Formation Services for information about the 29 services we perform and the 16 documents we prepare when we form an AZ nonprofit corporation for $1,297.
1. Select the Name of the Corporation
a. Trademarks & Service Marks
Finding a good name for your new Arizona corporation can sometimes be the most difficult piece of the formation puzzle. Ideally, you want a name that: (i) will afford strong federal trademark protection, but will not infringe on anybody’s trademark or service mark, (ii) will be easy for your customers to remember, (iii) will describe your products or services, and (iv) will allow you to obtain .com, .net., .org, .biz, .info and .us domain names. For information on obtaining domain names, see “How to Obtain a Domain Name that Does Not Infringe on a Trademark.”
One way to check if your desired corporate name will infringe on a federally registered trademark or service mark is to search your prospective name and variations thereof on the searchable database of the United States Patent & Trademark Office.
Unfortunately, obtaining a strong trademark that describes your product or services is frequently not possible. These two goals are in conflict. Most clients of trademark lawyers want a trademark that describes their products or services. For example, if I have a bar and grill called Rick’s Bar & Grill, it describes my business, but federal trademark law grants a lower level of protection to marks that are merely descriptive of the products or services. People like descriptive trademarks because they are descriptive. Trademark lawyers prefer marks that are arbitrary such as Apple® when used to identify computer products or fanciful marks such as Xerox® because these types of marks provide the highest level of trademark protection. For more information about trademarks and service marks, see the KEYTLaw feature called “Trademarks & Service Marks.”
b. Arizona Corporation Commission Name Approval
When you have selected at least one possible name for your corporation, you should perform a Name Search on the ACC’s website to see if you can find any Arizona entities or tradenames that are exactly the same as or too similar to the name you have chosen for your corporation. Click on the word Name then click on Check Name Availability.
Corporate names must satisfy the requirements of Arizona Revised Statutes Section 10-3401. An Arizona nonprofit corporation must be distinguishable from other registered Arizona entities and may not contain language that states or implies that the corporation is organized for a purpose other than the purpose permitted by A.R.S. Section 10-3301 and in its articles of incorporation.
2. Prepare the Articles of Incorporation
You must prepare your new Arizona nonprofit corporation’s articles of incorporation and have it signed by all incorporators. The articles of incorporation must contain the following information:
- The name of the Arizona corporation that satisfies the requirements of A.R.S. Section 10-3301.
- A brief statement of the character of affairs that the corporation initially intends to conduct.
- The name and address of each person who is to serve as a director until a successor is elected and qualifies.
- The name, street address and signature of the corporation’s statutory agent.
- The street address of the known place of business for the corporation, if different from that of its statutory agent.
- The name and address of each incorporator.
- Whether or not the corporation will have members.
- The signatures of all incorporators. Only one person is required to be the incorporator.
Arizona Corporation Commission’s Form Articles of Incorporation
The ACC provides form articles of incorporation only for a corporation that does not intend to become a tax-exempt charitable organization. To form an Arizona nonprofit corporation that will not be a charitable organization the incorporator must prepare and file the following forms with the Arizona Corporation Commission:
- Director Attachment. If you run out of room for director information on the Articles of Incorporation form, complete this form for the additional directors.
Arizona Corporation Commission’s Warning for Nonprofit Organizations that Intent to be Tax-exempt Organizations
If your to be formed nonprofit organization intends to be a charitable organization exempt from federal income tax DO NOT USE THE ARIZONA CORPORATION COMMISSION’S FORM ARTICLES OF INCORPORATION!!! The following text is the warning the ACC gives to people in its Instructions for the Articles of Incorporation:
“The Internal Revenue Service requires that certain language be in the Articles of Incorporation before it will grant tax exempt status. The form provided by the Arizona Corporation Commission complies only with the minimal requirements of Arizona law and does not include any IRS language. If you intend to apply for tax exempt status after the corporation is formed, you should determine what language is required by the IRS and prepare your own Articles of Incorporation. It is advisable to seek the advice of your tax or legal professional and/or the IRS before you form your corporation. The Commission staff cannot give you legal or tax advice, and cannot tell you want language to include in your Articles.“
Translation: The Arizona Corporation Commission is telling people who want to form an Arizona charitable organization to hire an experienced nonprofit organization attorney. Of course I am prejudiced, but I recommend you hire me (a legal professional who has formed 3,600+ Arizona corporations and LLCs and who has a masters degree in federal income tax law from New York University School of Law) to start an Arizona nonprofit organization that intends to become a tax-exempt charity. See my article called “Arizona Nonprofit Corporation Formation Services” for a list of the 29 tasks I perform and 16 documents I prepare when I create an Arizona charitable organization for the extremely low price of $1,297.
3. Tax Exempt v. Tax Paying Nonprofit Corporations
An Arizona nonprofit corporation can be either a taxpaying entity or a nontaxpaying entity for federal income tax purposes. Before preparing and filing the Articles of Incorporation, the incorporator(s) must decide if the corporation will pay federal income taxes or seek to become exempt from federal income tax because the Articles of Organization of each type on nonprofit corporation are different.
Nonprofit Does Not Mean Exempt from Federal Income Tax
Nonprofit status is a state law concept, not a federal income tax concept. Nonprofit status may make an organization eligible for certain state benefits, such as state sales, property, and income tax exemptions. Although most federal tax-exempt organizations are non-profit organizations, organizing as a non-profit organization at the state level may not automatically grant the organization exemption from federal income tax. To qualify as tax-exempt from federal income taxes, an organization must meet requirements set forth in the Internal Revenue Code (” IRC”). See Types of Tax-Exempt Organizations or Publication 557 for more information.
A popular misconception is that a nonprofit corporation formed under the Arizona Nonprofit Corporation Act is automatically exempt from federal income taxes and that contributions to the corporation are deductible on donors’ federal income tax returns. Incorporation under Arizona’s nonprofit laws merely creates an entity that does not have an intent to operate to make profits. Unless the nonprofit corporation obtains an exemption from federal income taxation from the Internal Revenue Service, the nonprofit corporation must file federal and state income tax returns, pay any taxes arising from its income, and donations to the corporation may not be deducted by the donors on their federal income tax returns.
To obtain an exemption from federal taxation, a nonprofit corporation must apply for recognition by the IRS of exempt status and receive a favorable determination from the IRS approving the application. The application forms are Package 1023, Application for Recognition of Exemption (for charitable organizations); and Package 1024, Application for Recognition of Exemption (for other tax-exempt organizations).
IRS Form 1023 Preparation Assistance
For Do-It-Yourselfers: If your nonprofit corporation intends to seek to be a tax-exempt organization approved by the IRS or if you want to learn about how to prepare and file an IRS form 1023 to become a tax exempt 501(c) charitable organization, I highly recommend that you purchase former IRS exempt organization specialist Sandy Deja’s ebook called “Prepare Your Own 501(c)(3) Application” for $39. Sandy’s credentials and experience with IRS Form 1023 are impeccable. Buying her ebook is a must for every nonprofit corporation that is considering becoming a 501(c)(3) charitable organization.
For Corporations that Want a Tax-exempt Law Professional to Do Some or All of the IRS Form 1023 Preparation: If you want a professional to do some or all of the IRS Form 1023 preparation you should hire us. We prepare IRS Form 1023s one of two ways:
1. The corporation hires KEYTLaw, LLC, to prepare all of the Form 1023 with input from the corporation’s Board of Directors and President. Our fee for this service is $2,500 payable in three installments of $800 due when hired, $800 due when we send the first partially completed draft of the Form 1023 to the President and $$900 due before we mail the completed Form 1023 with supporting documentation to the IRS.
2. The Board of Directors and the President do most of the work and hire us to provide assistance as needed at the hourly rate of $250 for attorneys and $195 for legal assistants.
Our fee is in addition to the IRS filing fee. See below for the IRS filing fee.
Certain types of organizations may be exempt from federal income tax without the need to file an IRS Form 1023 and obtain a favorable determination from the IRS. The following types of organizations may be considered tax-exempt under Section 501(c)(3): (i) churches, (ii) integrated auxiliaries of churches, and conventions or associations of churches, or (iii) any organization that: (a) is not a private foundation (as defined in section 509(a)), and (b) has gross receipts in each taxable year of normally not more than $5,000.
Even if the above organizations are not required to file Form 1023 to be tax-exempt, these organizations may choose to file Form 1023 to receive a determination letter from the IRS that recognizes their Section 501(c)(3) status. Section 501(c)(3) status provides certain incidental benefits such as: (i) public recognition of tax-exempt status, (ii) advance assurance to donors of deductibility of contributions, (iii) exemption from certain state taxes, (iv) exemption from certain federal excise taxes, and (v) nonprofit mailing privileges.
More about IRS Form 1023
The IRS applications for tax exemption are complex documents that require a lot of thought, information and time to complete properly. For example, new organizations must give financial statements for the current year and proposed budgets for the next two years, including a detailed breakdown of revenue and expenses. See the IRS’ Top Ten Reasons for Delays in Processing Exempt Organization Applications. The application must be completed fully and accompanied by a user fee.
- If the organization’s average annual gross receipts have exceeded or will exceed $10,000 annually over a 4-year period, the fee is $850.
- If the organization’s gross receipts have not exceeded or will not exceed $10,000 annually over a 4-year period, the user fee $400.
To qualify for exemption from federal income taxation, a nonprofit corporation must be organized for one or more of the purposes set forth in the IRC. The most common type of nonprofit corporation exempt from federal income taxation is a charity that complies with IRC Section 501(c)(3). To be tax-exempt as an organization described in IRC Section 501(c)(3) of the Code, an organization must be organized and operated exclusively for one or more of the purposes set forth in IRC Section 501(c)(3) and none of the earnings of the organization may inure to any private shareholder or individual. In addition, it may not attempt to influence legislation as a substantial part of its activities and it may not participate at all in campaign activity for or against political candidates. For more information about Section 501(c)(3) entities, see the IRS Publications & Notices for Exempt Organizations.
The exempt purposes set forth in IRC Section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening of neighborhood tensions; elimination of prejudice and discrimination; defense of human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
Effective Date of Charitable Organization Tax Exempt Status
Unless it is automatically exempt from federal income tax, a new corporation must file IRS Form 1023 and obtain IRS approval to be recognized as a tax exempt organization described in Section 501(c)(3). Generally, if a corporation files its application within fifteen months after the end of the month in which it was formed, and if the IRS approves the application, the effective date of the corporation’s Section 501(c)(3) status will be the date it was organized. Generally, if a corporation does not file its application (Form 1023) within fifteen months after the end of the month in which it was formed, it will not qualify for exempt status during the period before the date of its application.
Donations to the corporation are not deductible by donors before the effective date of the corporation’s Section 501(c)(3) tax exemption. However, if the organization files a timely IRS Form 1023 after its formation and obtains a tax exemption, the effective date of the exemption will be retroactive to the date the organization was formed.
Public Disclosure of Information of Tax Exempt Organizations
Certain information of tax exempt organizations is open to the public. Whether an organization is tax exempt and eligible to receive tax-deductible contributions can be determined by reviewing IRS Publication 78 (a partial list) (see also the online version of Publication 78) or by calling IRS Customer Service at 877-829-5500. A contributor can also check an organization’s exemption letter, which states the Code section that describes the organization and states whether or not contributions made to the organization are deductible.
A tax-exempt organization is required to provide copies of its three most recent information returns, its exemption letter, and its approved application with supporting documentation, without charge (other than a reasonable fee for any reproduction and mailing costs), to persons requesting copies (with certain exceptions), unless it has made these forms widely available by publishing them on the Internet in accordance with IRS regulations. For more information, see the IRS’ FAQ on Returns Disclosure, the final regulations published in IR Bulletin 1999-17.
The public may also obtain copies of exemption letters from either a local IRS Disclosure Office or the IRS, Chief, FOIA Branch, c/o Ben Franklin Station, P.O. Box 795, Washington, DC 20044. A fee is charged for reproduction and mailing costs.
Exempt organizations must file an annual information return on IRS Form 990. Applications for tax exemption (Form 1023 or 1024) and annual returns (Form 990) are generally subject to public disclosure, both by the IRS and by the organizations that filed them. The annual information return (Form 990) and its attachments (except donor lists), and the approved application for recognition of exemption and supporting documents, and any letters issued to the organization can be inspected at the organization’s place of business. Information about donors is specifically excluded from the information available for public inspection, except for donors to private foundations and political organizations.
If a 501(c) tax exempt organization does not disclose information that it is required by law to disclose, the person seeking the information may write to IRS Examination Division, 1100 Commerce Street, ATTN: T:EO:E, Dallas, TX 75242 and give the name and address of the organization that refuses to allow public inspection or provide copies of its return, and request that the return be made available for public inspection. The Tax Exempt/Government Entities Division of the IRS will contact the organization and arrange a time during which the return may be inspected. If the organization fails to provide the return at the agreed upon time, statutory penalties will be assessed. For more information on forced disclosure, see the final regulations published in IR Bulletin 1999-17.
Members of the public who believe that an exemption organization’s activities or operations are inconsistent with tax exemption may file a complaint with the Exempt Organizations Examination Division, 1100 Commerce Street, ATTN: T:EO:E, Dallas, TX 75242. The complaint should contain all relevant facts concerning the alleged violation of tax law. The IRS will not advise the complainant of any action it has taken or may take in response to a complaint. The confidentiality and disclosure provisions of the Internal Revenue Code preclude the Service from discussing matters relating to any activity it might undertake regarding the tax-exempt status of an entity with anyone other than the principal officers or authorized representatives of that entity. The IRS maintains an active examination program to ensure that tax-exempt organizations, as well as taxpayers, meet the requirements imposed on them by the Internal Revenue Code.
Direct your technical and procedural questions concerning charities and other non-profit organizations to IRS Customer Account Services at (877) 829-5500. The call center is open 8:00am to 6:30pm Eastern Time. You may also write to the IRS at: Internal Revenue Service, TE/GE Division, Customer Service, P.O. Box 2508, Cincinnati, OH 45201.
4. Membership v. Non-membership Nonprofit Corporations
The Articles of Incorporation must state whether or not the corporation will have members. An Arizona nonprofit corporation is not required to have members. The choice to have members or not have members is a decision for the founders and depends on the nature of the proposed activities and the desires of the founders. Nonprofit corporations without members are governed by the corporation’s board of directors.
If the corporation will have members, the articles of incorporation or bylaws may establish criteria or procedures for admission of members and continuation of membership. Unless otherwise provided in the articles of incorporation or bylaws, a corporation with members shall hold a membership meeting annually at a time stated in or fixed in accordance with the bylaws. A member of a nonprofit corporation is not personally liable for the acts, debts, liabilities or obligations of the corporation.
All members have the same rights and obligations with respect to voting, dissolution, redemption and transfer, unless the articles of incorporation or bylaws establish classes of membership with different rights or obligations or otherwise provide. All members have the same rights and obligations with respect to any other matters, except as set forth in or authorized by the articles of incorporation or bylaws.
A nonprofit corporation shall notify voting members of the date, time and place of each annual, regular and special members’ meeting at least ten days but not more than sixty days before the meeting date.
All corporate powers are exercised by or under the authority of and the affairs of the corporation are managed by its board of directors, subject to any limitation set forth in the articles of incorporation.
If a nonprofit corporation has members, the members elect all the directors (except the initial directors) at the annual meeting of members, unless either: (i) the articles of incorporation or bylaws provide some other time or method of election, or (ii) the articles of incorporation or bylaws provide that some of the directors are appointed by some other person or some of the directors are designated.
If the corporation does not have members, all the directors except the initial directors are elected, appointed or designated as provided in the articles of incorporation or bylaws. If no method of designation or appointment is set forth in the articles of incorporation or bylaws, the board of directors shall elect the directors (other than the initial directors).
A nonprofit corporation shall have the officers described in its articles of incorporation or bylaws or appointed by the board of directors in accordance with the articles of incorporation or bylaws. The bylaws or the board of directors shall delegate to one of the officers responsibility for preparing minutes of the directors’ and members’ meetings and for authenticating records of the corporation. The same individual may simultaneously hold more than one office in the corporation.
The general rule is that a nonprofit corporation may not make any distributions. It must keep as permanent records minutes of all meetings of its members and board of directors, a record of all actions taken by the members or board of directors without a meeting and a record of all actions taken by a committee of the board of directors on behalf of the corporation. The corporation shall maintain appropriate accounting records. The corporation or its agent shall maintain a record of its members in a form that permits preparation of a list of the names and addresses of all members and in alphabetical order by class of membership showing the number of votes each member is entitled to cast and the class of memberships held by each member.
Without the consent of the board of directors, no person may obtain or use a nonprofit corporation’s membership list or any part of the membership list for any purpose unrelated to a member’s interest as a member. Without the consent of the board of directors, the membership list or any part of the membership list shall not be:
- Used to solicit money or property, unless the money or property will be used solely to solicit the votes of the members in an election to be held by the corporation.
- Used for any commercial purpose.
- Sold to or purchased by any person.
Each year a nonprofit corporation must pay a $10 fee and file an annual report with the ACC that sets forth the following information that becomes available to the public:
- The names and business addresses of its directors and principal officers.
- A brief description of the nature of its activities.
- Whether or not it has members.
- A certificate of disclosure containing the information set forth in A.R.S. Section 10-3202.D.
- A statement that all corporate income tax returns required under Arizona law have been filed with the Arizona Department of Revenue.
- A statement of its financial condition consisting of one of the following documents: (i) the corporation’s most recent copy of page 2, Form 99 filed with the Arizona Department of Revenue; (ii) a copy of the corporation’s Charitable Organization Financial Statement as filed with the Arizona Secretary of State pursuant to A.R.S. §44-6552; (iii) a copy of the corporation’s Treasurer’s Report/Financial Statement prepared for the current fiscal year; (iv) a copy of the financial statement prepared for the corporation’s members; or (v) a statement that the corporation conducted no business in Arizona in the past year.
5. Select the Corporation’s Statutory Agent
Every nonprofit corporation formed in Arizona or qualified to do business in Arizona must have and maintain a statutory agent located in Arizona. The purpose of a statutory agent is to give notice to the public of a person or entity authorized by the corporation that can be served with legal documents as the agent of the corporation. The statutory agent is the person or entity that can be served with a summons and complaint filed in a lawsuit.
The statutory agent must be one of the following:
- An individual who resides in Arizona.
- A domestic business or nonprofit corporation formed under Arizona law.
- A foreign business or nonprofit corporation authorized to transact business or conduct affairs in Arizona.
- A limited liability company formed under Arizona law.
- A limited liability company authorized to transact business in Arizona.
The corporation must notify the ACC if it changes its known place of business or statutory agent. If the statutory agent changes its street address, the statutory agent must give written notice to the corporation of the change and sign, either manually or in facsimile, and deliver to the ACC for filing a statement that includes the new address and that recites that the corporation has been given written notice of the change.
KEYTLaw Statutory Agent Service $99/Year
When we form an Arizona nonprofit corporation we act as the corporation’s statutory agent for the first year at no charge. If the corporation wants KEYTLaw, LLC, to continue as its statutory agent after the first year we will send it a bill for the $99 annual fee. The corporation is free to replace KEYTLaw, LLC, as its statutory agent at any time. If the corporation does not pay an annual statutory agent fee KEYTLaw, LLC, will resign as the corporation’s statutory agent and the corporation will have 30 days thereafter to appoint a new statutory agent or the Arizona Corporation Commission will terminate the corporation’s existence.
If we did not form your nonprofit corporation it can hire KEYTLaw, LLC, to be its statutory agent. To hire KEYTLaw, LLC, to be the statutory agent for an Arizona nonprofit corporation for $99/year and/or to use our address as the corporation’s known place of business for $100/year, complete our Statutory Agent Questionnaire and pay the appropriate fee with your credit card using our secure web order form.
KEYTLaw Address Service $100/Year
We also offer an address service for nonprofits we form and those we do not form. All Arizona nonprofit corporations must have a place of business in Arizona, which can be a home address, business address, post office box or private mail box like that offered by the UPS store. The corporation’s address is a matter of pubic record on the ACC’s website. If your corporation does not have an address in Arizona or if it wants to keep its address off of the ACC’s website then it can purchase our address service for $100/year. To purchase this service complete our Questionnaire and pay the appropriate fee with your credit card using our secure web order form.
6. Prepare a Cover Sheet
When you file the articles of incorporation with the ACC, you must also submit a completed cover sheet (pdf).
7. Prepare a Certificate of Disclosure
When you file the articles of incorporation with the ACC, you must also submit a completed certificate of disclosure (pdf) for nonprofit corporations. All incorporators and all people who are officers, directors or trustees at the time the articles of incorporation are filed must sign an initial certificate of disclosure and file it with the ACC. Signatures must be dated within 30 days of delivery to the ACC. When completing the certificate of disclosure: (i) check yes or no for question A, but if you check yes, you must attach to the certificate of disclosure all information requested in question B. Check yes or no for question C. If you check yes, you must attach to the certificate of disclosure all information requested in question C.
If within sixty days after delivering the articles of incorporation to the ACC any person becomes an officer, director or trustee of the corporation and the person was not the subject of the disclosures set forth in a certificate of disclosure previously filed with the ACC, the incorporator or incorporators or, if the organization of the corporation has been completed, the corporation shall sign and deliver to the ACC within the sixty day period a declaration, sworn to under penalty of law, setting forth all information required by A.R.S. Section 10-3202.D(1), regarding the person. If the incorporator or incorporators or, as applicable, the corporation do not comply with this requirement, the ACC may administratively dissolve the corporation.
8. File the Incorporation Documents with the ACC
When you are ready to file the incorporation documents, hand deliver or mail the following to the ACC:
- Completed and signed articles of incorporation
- Completed cover sheet
- Completed and signed certificate(s) of disclosure for all incorporators and all people who are officers, directors or trustees at the time the articles of incorporation are filed
- Cash or check to pay the filing fee
9. Pay the Filing Fee
When you submit your articles of incorporation, the cover sheet and the certificate of disclosure, you must also pay the appropriate filing fee, which is $40 for a nonprofit corporation. You can pay the fee with cash or your check.
You may also pay an extra $35 for expedited review service. I recommend that you pay the extra $35, which will cause the ACC to review your articles of incorporation within the shortest time period possible. If you do not pay the extra $35 it could take up to a month for the ACC to approve or reject your articles of incorporation. When the articles are approved, the date of approval reverts back to the date the articles were filed. The problems with using regular review service rather than the expedited review are: (i) it can substantially reduce the time remaining to publish the articles of incorporation and deliver the affidavit of publication to the ACC, and (ii) you may have to wait a month to find out that your articles were rejected.
10. Where to File the Incorporation Documents
File your articles of incorporation, the certificate(s) of disclosure and the cover sheet and pay the filing fee at either of the following ACC locations:
Phoenix office: 1300 W. Washington, 1st Floor, Phoenix, AZ 85007.
Tucson office: 400 W. Congress St., Tucson, AZ 85701
ACC offices are open Monday – Friday, 8:00 a.m. to 5:00 p.m., except holidays. You may mail all the incorporation documents with a cover letter and a check for the filing fee to either ACC office. The ACC does not accept credit cards.
11. Obtain a Copy of the Articles of Incorporation
It goes without saying that you should make a copy of all the documents you submit to the ACC and retain them in your corporate file. I recommend that when you file your articles of incorporation, you submit an extra copy and ask the ACC to stamp the extra copy to show the date the ACC received the articles of incorporation. This extra copy can be shown to other parties (such as a bank when you open a bank account) before you receive the final approved articles of incorporation from the ACC.
12. Approval or Rejection of the Articles of Incorporation
After the ACC reviews your articles of incorporation, it will mail to the corporation’s place of business a notice of approval or rejection of the articles of incorporation. If the articles of incorporation were rejected, your corporation was created as of the date the articles were filed, but it terminated as of the date and time the ACC completes its determination. The ACC will notify you in a letter why the articles were rejected. You may then correct the problem and resubmit another set of incorporation documents. However, you will not be able to recover your filing fee.
If your articles of incorporation were approved, the corporation was created (“born”) as of the date the articles of incorporation were filed with the ACC (or a later date set forth in the articles).
13. Publish the Articles of Incorporation
Within sixty days after the date the articles of incorporation were filed with the ACC, you must publish the entire articles of incorporation for three consecutive publications in a newspaper of general circulation in the county of the corporation’s known place of business in Arizona. However, IF YOU FILE THE ARTICLES OF INCORPORATION ON A NON-EXPEDITED BASIS, THE ACC MAY APPROVE OR REJECT THE ARTICLES SUCH THAT YOU DO NOT HAVE TIME TO PUBLISH OR IT MAY OCCUR MORE THAN SIXTY DAYS AFTER FILING SO YOU MAY WANT TO PUBLISH THE ARTICLES BEFORE APPROVAL AND TAKE THE RISK THE ACC DOES NOT APPROVE YOUR ARTICLES. IF YOU WAIT FOR ACC APPROVAL, IT MAY BE TOO LATE TO MEET THE PUBLICATION DEADLINE.
See the ACC’s list of Arizona newspapers of general circulation by county, which list also includes newspapers from which the ACC will not accept publications. The cost to publish the articles of incorporation depends on the newspaper and the length of the articles, but you should budget $100 – $175, unless the corporation’s place of business is in Yuma County where the publication costs are three times higher than in Maricopa County.
I publish my notices of filing articles of incorporation with the Arizona Capitol Times newspaper at P.O. Box 2260. Phoenix, Arizona 85002; email address – firstname.lastname@example.org; and phone number 602-258-7026. This newspaper can also arrange to publish in any county in Arizona. After publishing, the Arizona Capitol Times will prepare and send an Affidavit of Publication to the Arizona Corporation Commission.
If you fail to timely publish the articles of incorporation, the ACC may revoke the charter of the corporation, which causes it to cease to exist.
Another advantage in hiring me to form your Arizona nonprofit is that you can avoid being ripped off by the newspaper in your county. All of the nonprofit corporations I form have a Maricopa County address or the corporation uses my address at no charge as it initial place of business in Arizona merely to avoid paying out of county newspaper publication costs. This procedure could save some corporations as much as $585 in publication costs.
14. Prepare the Bylaws
The board of directors of a corporation must adopt initial bylaws for the corporation. The bylaws of a corporation may contain any provision for regulating and managing the affairs of the corporation that is not inconsistent with law or the articles of incorporation. Each initial director should sign the bylaws.
WARNING: Arizona Revised Statutes Section 10-3206 requires all Arizona nonprofit corporations to have Bylaws. Make sure your new Arizona nonprofit corporation’s board of directors adopts Bylaws shortly after forming the corporation. Do not use for profit corporation Bylaws. Nonprofits corporations are different from for profit corporations and should only adopt Bylaws drafted specifically for Arizona nonprofit corporations. Do not use Bylaws drafted for use by non-Arizona nonprofit corporations.
15. Conduct an Organizational Board of Directors Meeting
After incorporating, the board of directors must hold an organizational meeting at the call of a majority of the directors to complete the organization of the corporation by appointing officers, adopting bylaws and carrying on any other business brought before the meeting. This organizational meeting must be documented by corporate minutes signed by all the directors.
WARNING: Arizona Revised Statutes Section 10-3205 requires all newly formed Arizona nonprofits hold an organizational of the initial members of the board of directors. Make sure your new Arizona nonprofit corp. documents this meeting with minutes or with an Action by Unanimous Consent signed by all of the directors.
16. For Corporations that Intend to be Tax Exempt: Adopt Seven Policies Recommended by the IRS
The IRS recommends that all tax-exempt organizations also adopt a Conflicts of Interest Policy, a Whistle Blower Policy, a Document Retention & Destruction Policy, a Gift Acceptance Policy, a Travel & Expense Reimbursement Policy, a Compensation Policy and a Joint Venture Policy. When we are hired to form an Arizona nonprofit corporation, we prepare all seven of these policies.
The following text are actual questions asked in Part VI of the 2011 IRS Form 990, the corporation’s annual Return of Organization Exempt for Income Tax:
12a Did the organization have a written conflict of interest policy?
12b Were officers, directors, or trustees, and key employees required to disclose annually interests that could give rise to conflicts?
12c Did the organization regularly and consistently monitor and enforce compliance with the policy?
13 Did the organization have a written whistleblower policy?
14 Did the organization have a written document retention and destruction policy?
15 Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?
16b did the organization follow a written policy or procedure
Many knowledgeable people believe that a tax-exempt organization that lacks any of these policies has a higher risk of IRS scrutiny and risk of audit.
These policies illustrate one of the biggest reasons I do not recommend that people form do-it-yourself nonprofit corporations. Most do-it-yourselfers are unaware of the need for and importance of these seven policies so their nonprofits never adopt any of the policies. Even when people are aware of the need for one or more policies, they do not know how to create the policy or if a policy found on the internet is legally sufficient for Arizona or federal law purposes.
17. Obtain a Minute Book Kit
All corporations should follow the formalities of corporate organization, which include the following:
- Sending proper written notice to all members, if any, entitled to vote at meetings of members and to all directors of annual and special meetings of the members and directors, respectively
- Preparing minutes of all meetings that document the persons present, the matters discussed and all resolutions adopted by the members and the directors
- Maintaining a corporate minute book that contains copies of the approved articles of incorporation, the affidavit of publication, the organizational minutes of the directors, the bylaws and copies of all minutes of meetings of the members, if any, and directors
- Opening and using a corporate checking account for all corporate funds
- Obtaining state and federal tax identification numbers
I recommend that all new corporations purchase a corporate kit immediately after being incorporated. These kits contain the basic corporate materials needed by new corporations such as the minute book. You can also purchase kits that contain sample organizational minutes and bylaws. I purchase my minute book kits from Attorneys Corporate Service. The kit I buy is $45. The phone number is 800-462-5487.
18. Obtain a Federal Employer Identification Number
Most newly formed corporations must obtain a federal employer identification number (EIN). If the nonprofit corporation intends to file an application to obtain exemption from federal income taxation, the corporation must obtain a EIN. Banks require this ID number for bank accounts. If the corporation will have employees and pay wages, it must file payroll tax returns and pay payroll taxes using the EIN. A corporation obtains a federal ID number by completing IRS Form SS-4 (pdf), Application for Employer Identification Number, and filing it with the Internal Revenue Service. See also the Instructions for Form SS-4 (pdf) and IRS Publication 1635 (pdf), Understanding Your EIN – Employer Identification Number.
Note: When we are hired to form an Arizona nonprofit corporation, we obtain the EIN for the corporation as one of the 29 services we provide.
You should apply for an EIN early enough to have your number when you need to open a bank account, file a tax return or make a tax deposit. You can get an EIN over the phone by calling the Tele-TIN phone number for your state, which for Arizona entities is 1-800-829-4933. If you prefer, you can fax a completed Form SS-4 to the appropriate service center (215-516-3990 for Arizona), and they will respond with a return fax in about one week. If you do not include a return fax number, it will take about two weeks. If you apply by mail, send your completed Form SS-4 at least four to five weeks before you need your EIN.
You may also obtain a federal EIN online in a matter of minutes from the IRS website. After submitting the completed Form SS-4 online, the IRS’ system will immediately issue an EIN. Online EINs are available 24/7 without the need to file any paper document with the IRS. The online EIN is a provisional EIN, but it will be the permanent federal employer identification number for your business unless voided by the IRS. The IRS may void an EIN obtained online if : (i) the name and social security number of the principal officer do not match Social Security Administration records, or (ii) the business has already been assigned an EIN. Keep a record of your application for an EIN. Be sure to print your SS-4 application after the EIN is assigned and keep a paper copy for your records. You can do this by clicking the “Print Form” button after receiving your EIN.
Third parties may also request EINs via the internet on behalf of a taxpayer. A third party who obtains an EIN for another party must retain a completed copy of the IRS Form SS-4 signed by the taxpayer and the signed statement authorizing the third party to file the online application.
WARNING: Do not get the EIN before the nonprofit corporation is formed!
19. Obtain Arizona Department of Revenue Identification
Numbers & Transaction Privilege Tax Licenses
If your corporation will engage in an activity that is taxable under the Arizona transaction privilege tax statutes, it must apply for a transaction privilege tax license for each business location before engaging in business. If the corporation will pay wages to employees, it must have an Arizona withholding number and an Arizona unemployment number. To obtain a transaction privilege tax license, an Arizona withholding number or an Arizona unemployment number, the corporation must complete and file an Arizona Joint Tax Application with the Arizona Department of Revenue. For licensing questions on transaction privilege or withholding call (602) 542-4576 or 1-800-634-6494 (from area codes 520 and 928). For questions on unemployment tax call (602) 248-9396 or email the Arizona Department of Economic Security.
20. Annual Meetings of Members & Directors
Arizona Revised Statutes Section 10-3701 requires that all Arizona nonprofit corporations with members hold an annual meeting of the members unless the articles of incorporation provide otherwise. All meetings of the members should be evidenced by written minutes. The board of directors has the responsibility to manage and direct the affairs of the corporation, subject to any limitation set forth in the articles of incorporation.
A nonprofit corporation shall notify members of the date, time and place of each annual, regular and special members’ meeting at least ten days, but not more than sixty days before the meeting date. Unless the articles of incorporation or bylaws provide otherwise: (i) regular meetings of the board of directors may be held without notice of the date, time, place or purpose of the meeting, and (ii) special meetings of the board of directors shall be preceded by at least two days’ notice of the date, time and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws.
Every Arizona nonprofit corporation should prepare minutes of all meetings of the members and directors. The minutes should be approved by the appropriate parties, signed and added to the corporate minute book along with copies of the notices of the meetings sent to the members and directors. Actions of members taken without a meeting must be approved by members holding at least a majority of the voting power, unless the articles of incorporation, bylaws or Arizona law require a different amount of voting power. Actions of directors taken without a meeting must be evidenced by resolutions signed by all of the directors.
21. Additional Incorporation Considerations
Although it is relatively easy and inexpensive to incorporate a business in Arizona and the information in this article tells you how to do it, we recommend that you consult an Arizona corporate attorney (why not us?) when incorporating because there are many issues that may require legal advice and action. A nonprofit corporation that intends to apply for an exemption from federal income tax must file articles of incorporation that contain certain specific provisions that are required by the Internal Revenue Service as a condition to obtaining tax-exempt status. It may be advisable to file trademark applications with the U.S. Patent & Trademark office to protect your trademarks and/or service marks. If you need a federally registered trademark, contact our trademark attorney Matthew Kulseth at 602-906-4953, ext. 4 or email@example.com.
Forming the new corporation is just the “tip of the iceberg” with respect to operating a business in the corporate form.
22. Arizona Resources
The following list contains links to web sites that have additional information about and resources related to forming a corporation in Arizona:
- Arizona Department of Revenue – tax forms and tax information
- Guide to Arizona Licensing Requirements – Arizona agencies that require licensing, certification or permits for certain activities conducted in Arizona.
23. Why We Do Not Recommend Do-It-Yourself Nonprofit Incorporations
We wrote the above article to explain how to form an Arizona nonprofit corporation because we know that a lot of people will not hire an experienced attorney to form their corporation. Our goal in writing the article was to give these people some useful information about how to form an AZ nonprofit corp.
However, we believe it is a serious mistake for inexperienced people, including attorneys, to form an Arizona nonprofit corporation. It’s not like forming a for profit corporation or a limited liability company. Those types of Arizona entities are much simpler to form. If you mess up your 100% owned for profit corporation or LLC, you may be liable to creditors of the company. If you mess up a nonprofit corporation that you form, you may be liable to the corporation for your mistakes.
One of the biggest reasons you should hire an experienced attorney (such as one of us) to prepare a nonprofit corporation is because the founders, initial directors and officers owe fiduciary duties to the corporation and can be liable to the corporation for the harm it suffers if the corporation is not formed properly or if their acts or omissions cause the corporation to violate Arizona’s nonprofit laws. That puts the founders, directors and officers of a nonprofit corporation in a substantially greater risk of liability environment than when you form your wholly owned company. If you screw up the formation or operation of your wholly owned company, your company will not sue you. If you screw up the formation or operation of a nonprofit corporation, you may get sued by the corporation.
Do you really want to save a little money, but risk having to explain to your board of directors and corporate officers and perhaps donors that you screwed up the formation of THEIR nonprofit corporation? Do you want to save money but open yourself up to possible embarrassment, criticism and potential liability?
Note: My Organizational Resolutions of the Board of Directors authorizes the corporation to reimburse the founders for their legal fees and costs associated with forming the nonprofit corporation so if you don’t want to contribute the funds to the corporation, you can be reimbursed for your out of pocket formation expenses.
Why You Should Hire Arizona Nonprofit Corporation Lawyers Richard Keyt & Richard C. Keyt to Form Your AZ Nonprofit Corp
We want to form your Arizona nonprofit corporation. We have formed 5,000+ Arizona companies, including many Arizona nonprofits. For the long list of reasons why you should hire us, Arizona nonprofit corporation lawyers, to form your Arizona nonprofit corporation, read our article called “Arizona Nonprofit Corporation Formation Service.”
This article explains the 29 services we provide and the 16 documents we prepare when we form an Arizona nonprofit corporation for the low price of $1,297, which includes all of the formation costs. Of the 16 documents I prepare, seven of them are policies (one required by Arizona Revised Statutes Section 10-3864 and all of them recommended by the IRS for tax-exempt organizations). Sixteen documents for $1,297 is $81 per document, which is pretty sweet for custom drafted attorney prepared corporate documents.
Call if You Have Questions – No Charge
Call Arizona nonprofit organization lawyers Richard Keyt (masters degree in tax law & 480-664-7478) and Richard C. Keyt (masters degree in accounting & former CPA & 480-664-7472) if you have questions about forming nonprofit organizations in Arizona or obtaining tax-exempt charity status from the IRS. We do not charge for questions about forming Arizona nonprofit corporations or becoming a tax-exmpt charity.
How to Hire the Keyts to Form Your Nonprofit Corporation for $1,297
To hire Arizona nonprofit lawyers Richard Keyt and his son former CPA Richard C. Keyt to provide 29 services, prepare up to 16 documents and form your Arizona nonprofit corporation for $1,297 (including all costs: $75 ACC expedited filing fee, $185 newspaper publication, $45 corporate minute book & seal and $10 postage) select one of the following options:
Option 1: Phone Method
- Call Richard Keyt (480-664-7478) or his son Richard C. Keyt (480-664-7472), and give us your information over the phone.
Option 2: The Online Method
- Complete our online “Nonprofit Corporation Formation Questionnaire.” Enter the information about the nonprofit corporation into this online questionnaire then click on the submit button.
- Go to our secure online store and pay with your Visa, American Express, MasterCard or Discover or call our corporate legal assistant Michelle at 480-664-7813 and give her your credit card information.
We form corporations and LLCs every Friday (or Thursday if Friday is a holiday), which means your new corporation will be formed no later than one week after we get all information and have been paid.