Nonprofit Formation · New Jersey
Setting Up a New Jersey Nonprofit and Pursuing 501(c)(3) Recognition
A nonprofit needs two separate approvals: incorporation under New Jersey law and recognition of tax-exempt status from the IRS. Paul H. Appel helps founding boards get both on a sound footing, with governance that will satisfy donors, grantors and regulators.
Two different things
Nonprofit status and tax exemption are not the same
A nonprofit corporation is a creature of State law: an organization that does not distribute profits to private individuals. Tax-exempt status is a federal determination, made by the IRS after the organization applies.
New Jersey nonprofits are formed under the New Jersey Nonprofit Corporation Act by filing a certificate of incorporation with the Division of Revenue and Enterprise Services. Filing that certificate does not exempt the organization from tax, and it does not make donations deductible. Those benefits depend on the IRS recognizing the organization under section 501(c)(3) or another part of section 501(c).
Because the IRS reviews the documents the State has already accepted, the two steps have to be planned together. A certificate of incorporation without the purpose and dissolution language the IRS expects, or bylaws that leave conflicts of interest unaddressed, can delay the federal application or require amendments before it can proceed. Getting the sequence right is the focus of nonprofit setup within the firm's wider entity formation practice.
The process
From founding idea to recognized charity
Define the purpose and the plan
Clarify the charitable, educational, religious or other exempt purpose, the programs that will carry it out, and how the organization will be funded. The IRS will ask about each.
Incorporate in New Jersey
File a certificate of incorporation with an exempt purpose clause and a clause dedicating assets to exempt purposes on dissolution, and name a registered agent.
Seat the board
Appoint the initial board of trustees — New Jersey generally requires at least three — and decide whether the organization will also have voting members.
Adopt bylaws and policies
Hold an organizational meeting to adopt bylaws, a conflict-of-interest policy, and resolutions electing officers and authorizing a bank account.
Obtain an EIN and register
Apply for a federal EIN and complete New Jersey business registration.
Apply to the IRS
File Form 1023, or the shorter Form 1023-EZ if the organization meets the IRS eligibility limits, with the required narrative and financial information.
Governance from the start
Policies a founding board should adopt
The federal application asks about governance, and donors and grantors increasingly ask too. These are the documents worth having in place early:
- Bylaws covering trustee terms, quorum, voting, officers and committees
- A conflict-of-interest policy requiring disclosure and recusal when a trustee or officer stands to benefit
- A policy for setting compensation of any officer or key employee, based on comparable data
- Document retention and whistleblower policies
- Gift acceptance guidelines, particularly for non-cash donations
- A written record of every board meeting and decision
Bylaws for nonprofits share their structure with corporate bylaws; the page on bylaws and board governance explains quorum, officer and indemnification provisions in more detail.
After formation
Recurring State and federal obligations
Recognition is the beginning of compliance, not the end of it.
| Obligation | Agency | What to know |
|---|---|---|
| Annual report | NJ Division of Revenue and Enterprise Services | Keeps the corporation in good standing; due each year in the anniversary month |
| Charitable registration | NJ Division of Consumer Affairs, Charities Registration Section | Generally required before soliciting contributions in New Jersey, unless an exemption applies; renewed annually with financial reporting |
| Annual information return | IRS | Form 990, 990-EZ or 990-N depending on size; repeated failure to file can cost the organization its exemption |
| Sales tax exemption | NJ Division of Taxation | A separate application is needed for exemption from New Jersey sales tax on purchases |
| Board records | Internal | Minutes, conflict disclosures and policy reviews show the board is exercising oversight |
Restrictions to understand
The rules that come with 501(c)(3) status
Exempt status carries conditions that founders should understand before they apply, not after. A 501(c)(3) organization must be organized and operated for exempt purposes, its earnings must not benefit insiders (private inurement), and it may not provide more than incidental benefit to private interests. It may not participate in political campaigns for or against candidates, and lobbying must not be a substantial part of its activities.
Timing matters as well. When the application is filed within the IRS's deadline — generally 27 months from formation — recognition is usually effective back to the date of incorporation, which matters for donors who give in the meantime. Founders who want a fuller walkthrough of the early decisions can read how to start a nonprofit in New Jersey, and established organizations whose records have fallen behind may benefit from a corporate governance review.
Questions & answers
Nonprofit setup — questions founding boards ask
Is a nonprofit corporation automatically tax-exempt?
No. Incorporating as a nonprofit under New Jersey law establishes that the organization will not distribute profits, but federal income-tax exemption and deductibility of donations depend on IRS recognition. Most charities apply for that recognition on Form 1023 or 1023-EZ. State tax benefits, such as sales tax exemption, require their own applications to New Jersey.
Should we file Form 1023 or Form 1023-EZ?
The streamlined Form 1023-EZ is available only to smaller organizations that meet the IRS's eligibility worksheet, and some types of organization cannot use it at all. It is quicker, but it gives less opportunity to explain unusual programs. Organizations with significant projected revenue, complex activities or plans to seek large grants often file the full Form 1023, which also produces a more detailed record of how the organization intends to operate.
Can founders be paid by the nonprofit?
Yes, within limits. Officers and employees can receive reasonable compensation for services actually performed, set by disinterested board members using comparable data. What a charity cannot do is let its income benefit insiders beyond fair value. Founders who also sit on the board should recuse themselves from votes on their own pay, which is one reason the conflict-of-interest policy matters.
Do we have to register with New Jersey before fundraising?
Generally, yes. Organizations that solicit charitable contributions in New Jersey must usually register with the Charities Registration Section of the Division of Consumer Affairs before soliciting, unless an exemption applies, and must renew annually. Registration is separate from incorporation and from IRS recognition, so it is easy to overlook. Check the current requirements before the first appeal goes out.
Your attorney
Paul H. Appel, Esq.
Every matter at the firm is handled personally by Paul — the same attorney reads the documents, gives the advice and negotiates on your behalf.
- Education
- Columbia Law School, Juris Doctor (1967)
- Experience
- 58+ years in commercial and business law
- Focus for this matter
- Entity formation, operating agreements, bylaws and governance records
- Office
- Freehold, NJ — serving Monmouth, Middlesex & Ocean Counties
Contact
Discuss Your Business Matter With Paul
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- Phone917-748-6124
- Office11 Crestwood Drive, Freehold, NJ 07728
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