Because Arizona modified its nonprofit corporation law effective January 1, 2017, to eliminate the newspaper publication requirement for corporations that have a place of business in Maricopa County or Pima County I reduced our fee to form an Arizona nonprofit corporation from $1,297 to $1,097, a reduction of $200.
Effective January 1, 2017, Arizona nonprofit corporation law was modified to eliminate the previous requirement that all new Arizona nonprofit corporations must publish their Articles of Incorporation in a newspaper approved by the Arizona Corporation Commission. That’s the good news. The bad news is that the publication requirement will continue for all Arizona nonprofit corporations that have a known place of business in a county other than Maricopa or Pima.
Wall St. Journal: “Underestimating paperwork and placing relatives on the board are among the bungles. People who are passionate about a cause typically have several options. They can volunteer their time. They can donate money to a charitable organization. Or, if they are especially passionate and ambitious, they can start a charity. . . . Here are four common mistakes people make when they start a charity—and how to avoid them:”
Question: My group is considering forming a tax-exempt charitable organization. Can the organization be a limited liability company or must it be a nonprofit corporation?
Answer: It can be an LLC if the LLC is owned only by Section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof and the LLC satisfies the 12 conditions described in an IRS paper called “Limited Liability Companies as Exempt Organization Update.” The LLC cannot have individuals or nonexempt organizations as members, and its organizing documents must contain certain language required by the IRS. The 12 conditions are:
1. The organizational documents must include a specific statement limiting the LLC’s activities to one or more exempt purposes.
2. The organizational language must specify that the LLC is operated exclusively to further the charitable purposes of its members.
3. The organizational language must require that the LLC’s members be section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof (“governmental units or instrumentalities”).
4. The organizational language must prohibit any direct or indirect transfer of any membership interest in the LLC to a transferee other than a section 501(c)(3) organization or governmental unit or instrumentality.
5. The organizational language must state that the LLC, interests in the LLC (other than a membership interest), or its assets may only be availed of or transferred to (whether directly or indirectly) any nonmember other than a section 501(c)(3) organization or governmental unit or instrumentality in exchange for fair market value.
6. The organizational language must guarantee that upon dissolution of the LLC, the assets devoted to the LLC’s charitable purposes will continue to be devoted to charitable purposes.
7. The organizational language must require that any amendments to the LLC’s articles of organization and operating agreement be consistent with section 501(c)(3).
8. The organizational language must prohibit the LLC from merging with, or converting into, a for -profit entity.
9. The organizational language must require that the LLC not distribute any assets to members who cease to be organizations described in section 501(c)(3) or governmental units or instrumentalities.
10. The organizational language must contain an acceptable contingency plan in the event one or more members ceases at any time to be an organization described in section 501(c)(3) or a governmental unit or instrumentality.
11. The organizational language must state that the LLC’s exempt members will expeditiously and vigorously enforce all of their rights in the LLC and will pursue all legal and equitable remedies to protect their interests in the LLC.
12. The LLC must represent that all its organizing document provisions are consistent with state LLC laws, and are enforceable at law and in equity.
The text below is taken from the Arizona Corporation Commission’s instructions for its form Articles of Incorporation for a nonprofit corporation. The ACC Warning is for All Nonprofit Organizations that Intent to be Tax-exempt Organization. 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 on page 1 in the middle column of its Instructions for the Articles of Incorporation for a nonprofit corporation:
“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
Nonprofit Law Blog: “Insightful founders of new ventures understand the value of involving legal counsel in the early stages of planning. A knowledgeable attorney can identify issues, opportunities, and threats which allows founders to react appropriately as they plan the organizational and operational structures. As a result, investing in legal assistance at the outset can help to avoid costly reactionary steps in later stages that might otherwise be necessary if the founders had unknowingly or unintentionally built their plan on a foundation of structures that are wrought with problems. “
Nonprofit Law Blog: “A great idea and committed leader are the baselines for starting a nonprofit public charity. But there’s more needed. Check out the following steps you should take as you move forward:”