Starting a Maine Nonprofit
Starting a Maine Nonprofit FAQs
Below are answers to questions we often hear about the process of starting a nonprofit in Maine. If you have not done so already, be sure to also review our Checklist for Starting a Nonprofit in Maine.
1. How much does it cost to file for nonprofit status?
|Application for Reservation of Name (state) (Optional – see step #1 of our Start-Up Checklist)||$5|
|Articles of Incorporation||$40|
|File for Federal Tax-Exempt Status (IRS) (form 1023 or 1023-EZ)
|Obtain Maine Sales Tax Exempt Status (if eligible)
State income tax exemption is automatic for organizations that have received their 501(c)(3) status from the IRS. However, sales tax exemption is not. Only some categories of nonprofits are eligible for sales tax exemption.Note: Each type of exempt organization is required to file a different application. This website will help to determine which form your organization must file.
|Charitable Solicitations Licensing/Registration
If you will solicit contributions in Maine, you will need to comply with the Charitable Solicitations Act and be licensed as a charitable organization, unless you qualify as exempt from licensure.
|Lawyer fee (if choosing to use a lawyer). Fee includes ten or so items, but not filing fees. The ten items typically are:
||$1,250-$2,000 flat fee|
|Total Cost (without a lawyer)||$970/$480|
Important Notice: Form changes occur periodically to implement new requirements. Forms may be eliminated or revised, or new forms may be created. Before submitting forms for filing, please be sure that you have the most recent version.
2. Where do I start?
We recommend starting with our Checklist for Starting a Maine Nonprofit and we strongly encourage you to talk with as many people as you can about this enormous undertaking
3. How do I write a mission statement?
A mission statement is a short, succinct description of your organization’s purpose. It tells what your organization strives to achieve, but not how it goes about doing so. This process can be time-consuming, but a great unifier for your new board.
4. What are the advantages and disadvantages of becoming a nonprofit?
This website will help you consider the pros and cons becoming a tax-exempt nonprofit corporation.
5. Should our nonprofit association incorporate?
There are many advantages to incorporating your nonprofit.
- If your group is the target of a lawsuit, incorporation can protect you from personal liability. Qualifying for tax exempt status from the IRS as a nonprofit corporation is easier.
- Unincorporated nonprofits applying for a tax-exempt status from the IRS are required to prepare and adopt a complicated set of organizational paper and operating rules.
- Learn more about the pros and cons of incorporating as a nonprofit.
6. How do I recruit new board members?
We recommend you speak with your friends, neighbors and colleagues, as well as to people who do similar work with other organizations. Look for those people who share your passion for your vision, and who bring the skills and experience necessary to best meet your new organization’s needs.
- Learn more about creating your first board.
- Find suggestions and strategies in MANP’s Keys to Successful Board Recruitment handbook.
7. How many board members do I need?
Although Maine law allows for fewer members, the board should be made up of at least five persons unrelated to each other or to staff, to ensure appropriate deliberation and diversity.
8. Can I raise money before I receive my 501(c)(3) status?
Yes, but you may be required to be licensed through the Maine Department of Professional and Financial Regulation, Office of Professional and Occupational Regulation under Maine’s Charitable Solicitations Act. Beginning August 1, 2014, an IRS determination letter is no longer a required element of the licensing application. Donations received before you have your 501(c)(3) status may not be tax deductible for the donor.
- Read our white paper on Fundraising and Charitable Solicitation Guidelines to be sure you understand what constitutes a “solicitation” and learn what kinds of charitable solicitation licenses are required by the state of Maine.
9. What is Unrelated Business Income (UBI)?
UBI is income from a regularly-carried-on trade or business that is not substantially related to the organization’s exempt purpose. Determining whether or not your activities result in UBI, is sometimes difficult – merely using the money received for charitable purposes is not enough to exempt UBI from taxation.
- The IRS has created a helpful tutorial.
10. How do I know what type of nonprofit I might be?
The IRS has many classifications of tax exempt organizations. Most new organizations are interested in becoming a public charity, exempt under 501(c)(3) of the tax code. Use the links below to help determine which type of nonprofit makes the most sense for your mission. Since it is complicated and widely variable, you may want to consult a lawyer.
- List of the types of tax-exempt entities
- Descriptions of the different types of 501(c)(3) organizations
- IRS Publication 557: “Tax Exempt Status for your Organization”, the definitive 72 page information pamphlet on federal tax-exemption.
11. What does it mean to be tax exempt?
All nonprofits that qualify as public charities under the IRS code 501(c)(3)are exempt from federal corporate income taxes. Some are also exempt from state and local property and sales taxes, which require separate application processes (see next questions). These nonprofits are not exempt from withholding payroll taxes for employees, and they also are required to pay taxes on income from activities that are unrelated to their mission.
12. Are all nonprofits exempt from state sales tax?
No. Organizations must apply to the state for this exemption. Some nonprofits, such as hospitals, schools, churches and libraries, are eligible for the exemption from paying Maine Sales Tax on goods and services purchased. Other organizations meeting certain requirements may be as well.
13. Are all nonprofits exempt from property tax?
If you own property, you may be exempt from paying property taxes to the municipality in which it is located. An application form must be completed and submitted to the municipality in which your property is located. Read MANP’s white papers on qualifying for property tax exemption and property tax exemption procedural choices.
14. What is a fiscal sponsor?
A fiscal sponsor is a person or organization that receives and administers your funds, while you await your organization’s nonprofit status.
In searching for a fiscal sponsor, you should seek out organizations that have demonstrated an interest in programs or projects similar to yours. It will be easier to find a fiscal sponsor if your project enhances or furthers that organization’s charitable purposes and/or if that organization benefits in some way from being associated with your project.
- Learn more about fiscal sponsorship, including how to tell if it’s right for you, and how to find a fiscal sponsor.
15. Can a nonprofit make a profit?
Operating any organization at a deficit or without a sufficient “rainy day” fund is not good business. In order to maintain the viability of any organization, it is important to operate with some “net revenue” at the end of a year. What distinguishes nonprofits is not whether they can make a profit, but what happens to those profits. Nonprofits are prohibited from distributing profits to shareholders and all revenue must be earmarked for the organization’s mission.
16. What is a registered agent and how do I get one?
Anyone can serve as a registered agent. This is just the person who is willing to be the contact for the organization with the Secretary of State’s office. This person should have a long-term commitment to the organization and a stable mailing and e-mail address. This is where reminders (electronic) to file your annual report may be sent and who the Secretary of State would contact if there is a need. Some organizations hire a lawyer or other individual to do this, but most choose the board president or other committed individual. If you do hire someone, that person would be a “commercial registered agent”.
- The Secretary of State maintains a list of persons or firms willing to be a Commercial Registered Agent.