Starting a Nonprofit in New York

Starting a Nonprofit in New York is governed by the Chapter 35 of the New York consolidated laws.

Scope of the Act – There are four types of Non profit corporations that can be formed in New York.

Type  A  – A nonprofit organization established for athletic, agricultural, animal  husbandry, civic, commercial, industrial, fraternal, horticultural, patriotic, professional, political, social, trade or service association.

Type B – A nonprofit organization formed  for charitable, educational, religious, scientific, literary, cultural or  for  the prevention of cruelty to children or animals.

Type  C  – A nonprofit organization formed for any lawful business purpose to achieve a lawful public  or  quasi-public objective.

Type D – A nonprofit organization formed under any other corporate law of New York.

P.S: Non profits that seek Income tax recognition under section 501(c)(3) of the IRS code are classified as Type B Non profit organization under New york Law.

Churches and other religious organizations do not fall under the purview of this Law. They are instead governed by a separate Religious corporation Law of New York.

Eligibility to Start a Nonprofit organization In New York
a) The application for starting a nonprofit must be put up by one or more incorporators, who must be natural persons of at least eighteen years of age. Unlike some other states, a business entity cannot incorporate a nonprofit organization in New York.

b) Minimum number of directors required for a Nonprofit organization in New York is 3.

Steps involved in starting a Nonprofit organization in New York

Step 1)Choosing a Name for the Nonprofit organization

As per New York statutes, a nonprofit organization must include the corporate designators – ‘Corporation’, ‘Incorporation’ or ‘Limited’ or an abbreviation thereof with its name, unless the organization is formed for Charitable or religious purposes.

The following words are negative words and cannot be used in the name of a Nonprofit organization- ‘acceptance’, ‘annuity’, ‘assurance’, ‘bank’, ‘bond’,’casualty’,’doctor’,’endowment’,’fidelity’, ‘finance’, ‘guaranty’, ‘indemnity’,’insurance’, ‘investment’, ‘lawyer’, ‘loan’, ‘mortgage’,’savings’,’state police’,’state trooper’,’surety’,’title’, ‘trust’ and ‘underwriter’.

Additional Approval by departments would be required in some cases. Ref. Sec 404 of the New York Non profit corporation law for more details.

Other factors to be considered when choosing the name can be assessed here. (opens in a new window)

Step 2) Drafting the Certificate of Incorporation

The Certificate of Incorporation is the principal organizing document for a nonprofit organization. The certificate has to be drafted and signed by all the incorporators of the nonprofit organization and submitted to the corporation department of the state.

As per New York statutes, the Certificate of Incorporation must be titled or should begin with the statement  – ” Certificate of Incorporation of  ……………….. (name of corporation), under section 402 of the  Not-for-Profit Corporation Law”

The mandatory details to be included in the certificate, as per New York laws are –

(1) The name of the proposed nonprofit organization, as per requirements mentioned above.

(2)  A statement that  the nonprofit organization is a nonprofit organization as defined in sub paragraph (a)(5) of section 102 of the Act.

(3)The purpose(s) for  which the nonprofit organization is being setup.

(4) The type of nonprofit organization (Type A,B,C or D – refer discussions above)as specified in section 201 of the Act.

(5) The county within New York where the office of the nonprofit organization would be situated. The certificate may also include the P.O box address of an office outside the the state where its Books  and records would be kept.

(6) If the organization would be a Type A, B, or C nonprofit organization, then the names and  addresses  of  the  initial  directors of the organization. (not mandatory for Type d organizations)

(7) The duration for which the nonprofit organization is being instituted. If nothing is mentioned the duration is considered to be perpetual.

(8) A statement designating the  secretary  of  state  as the agent  of  the nonprofit organization on whom all notices,demands and processes against the organization may  be  served.

(9) A valid  postal address where the secretary of state could mail a copy of such notices,process served against the nonprofit organizaion.

(10) If alternatively the nonprofit organization proposes to appoint its own registered  agent,then the name and address  of the resident agent’s New York address (P.o Box address not acceptable) along with a statement that the registered agent would be the agent of the nonprofit organization and that all processes against the organization may  be served to the registered agent.

(11) If the organization is any one of Agricultural and horticultural corporations, Alumni corporations,Corporations for the prevention of cruelty, Local development corporations, Private and family cemetery corporations, Fire corporations, Christian associations, Soldiers’ monument corporations, Medical societies,Historical societies, Boards of trade and chambers of commerce or a University faculty practice corporations, then a statements that the organization is a special not-for-profit
organized  under   article   14 of the statute.

(12) A statement clarifying whether the organization will have membership provisions. If the organization would allow membership hen the certificate should also mention the types  or  classes  of   membership.

(13) A provision explaining the process to be followed for disposing the assets of the organization in the event of  dissolution  of the organization in future.

(14) Any other lawful provision which is desired to be added for managing the affairs of the nonprofit organization.

Additionally the certificate  must include clauses mandatory for organizations seeking IRS tax exemption recognition under Section 501(c)(3) of the code.

Download sample certificate of Incorporation

All these clauses are included in a sample certificate of Incorporation. Click here to download a sample certificate of incorporation for New York. (opens in a new window).

Please note that this format has the bare minimum clauses and it does not include IRS clauses for tax exemption. (Be sure to add that )

Step 3) Filing the Certificate with the state department

The duly filled certificate of incorporation along with a check of $75.00 must be submitted either in person or mailed across to the state department office at :

New York State Department of State Division of Corporations, State Records and Uniform Commercial Code One Commerce Plaza, 99 Washington Ave. Albany, NY 12231

Time required – Starting a non profit organization in New York takes around 3-7 working days. Provision for same day expedited filing is also available upon payment of expedite fee.

Birth of the Nonprofit organization

A Nonprofit organization comes into formal legal existence in New York on successful filing of the Certificate of Incorporation with the New York State Department of State Division of Corporations.

Post Incorporation formalities

The Nonprofit organization should conduct its first board meeting to adopt the organization’s bylaws.

Drafting the Bylaws

Important provisions to be kept in mind when drafting the organizations bylaws are as follows –

Director’s quorum – The director’s quorum is majority or as provided in the Certificate of Incorporation or the bylaws. In case the number of directors is less than 15, the quorum is not less than 1/3rd of the directors. If the number of directors is more than 15, the quorum is 5 plus one additional person for every additional 10 directors or fraction thereof beyond the first 15 directors.

Director’s term of office – This is as specified in the Articles or the bylaws but not exceeding 5 years in any case.

Member’s Quorum – The Member’s quorum is to be taken as specified in the Certificate of Incorporation or the bylaws but not less than 10% of the voting members or 100 votes whichever is less.

Officer’s requirements – One person may hold two or more offices except for the president and the secretary of the Nonprofit organization. The term of officers is fixed in the Articles or the bylaws. If nothing is specified, the term of office for officers is to be taken as 1 year.

Conclusion

The process of starting a nonprofit organization in New York and of filing for Incorporation is a valuable learning experience that introduces the Incorporators with all the legal processes and systems that would be expected of the organization to follow.

Alternatively , the process of Incorporation can be outsourced to professional Incorporation service providers or a lawyer.

However, it is not advised to let the lawyer unilaterally draft the Certificate of Incorporation or the bylaws of the NPO as these two documents eventually govern how a nonprofit functions on a day to day basis in New York.