Nonprofit Formation Checklist: Legal Requirements for Founders

March 26, 2026

By: Diana Miller

Partner, Assurance

Key Takeaways

You must form a legal entity at the state level before applying for federal tax-exempt status — the IRS cannot recognize an organization that doesn’t legally exist yet.
Your organizing document must include both a purpose clause and a dissolution clause that meet IRS requirements, or your 501(c)(3) application will be rejected.
Applying for your EIN, registering with your state, and filing Form 1023 are three separate steps — each with its own timeline and requirements.
Most states require charitable organizations to register before soliciting donations, regardless of size.
Bottom Line: The legal formation sequence matters. Getting the order wrong costs time and can affect your tax-exempt effective date.

Starting a nonprofit involves more than registering a name and opening a bank account. The legal formation process has a specific sequence, and each step feeds into the next. Miss one or get the order wrong, and you’ll spend weeks correcting paperwork that should have been done correctly the first time correctly.

Here is what founders need to complete before their organization can legally operate and apply for federal tax-exempt status.

Step 1: Choose Your Legal Structure

The IRS recognizes four entity types for 501(c)(3) purposes: corporations, limited liability companies, unincorporated associations, and trusts. The large majority of nonprofits incorporate as nonprofit corporations under state law. Incorporation provides the clearest legal structure, limits personal liability for board members, and is what most grantmakers and state agencies expect.

Sole proprietorships and partnerships are not eligible for 501(c)(3) status under any circumstances.

Step 2: Draft and File Your Organizing Document

For a nonprofit corporation, this is your articles of incorporation, filed with and approved by your state’s business or corporate filing authority. This document must include two provisions the IRS will look for when reviewing your Form 1023 application.

The first is a purpose clause that limits your organization’s activities to one or more purposes permitted under section 501(c)(3) — charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals. A reference to section 501(c)(3) of the Internal Revenue Code in your purpose clause is generally sufficient.

The second is a dissolution clause specifying that if your organization dissolves, its remaining assets will be distributed to another 501(c)(3) organization, to the federal government, or to a state or local government for public purposes. Assets cannot revert to private individuals or members.

If either provision is missing or too broadly written, the IRS will ask you to amend your organizing document before processing your application.

Step 3: Adopt Bylaws

Bylaws are your organization’s internal operating rules. They govern how board meetings are conducted, how officers are elected and removed, how conflicts of interest are handled, and how decisions are made. Bylaws are not required to be filed with the state in most jurisdictions, but they must exist and be consistent with your articles of incorporation.

The IRS will ask whether you have adopted bylaws as part of Form 1023. Having them in place before you apply — not drafted hastily the night before — reflects the governance structure the IRS expects to see.

Step 4: Appoint Your Initial Board of Directors

Nonprofit corporations must have a board of directors. Most states require a minimum of three board members, though requirements vary. Board members should be identified in your organizing documents or initial meeting minutes, and the person signing Form 1023 must be listed as an officer, director, or trustee in your application.

Step 5: Obtain an Employer Identification Number

Your organization needs its own EIN before you can open a bank account, hire employees, or file any federal forms, including Form 1023. Apply through IRS.gov. The EIN is issued immediately upon applying online. Do not use the EIN of a related organization or any individual.

Step 6: Register with Your State for Charitable Solicitation

Federal tax exemption is a matter of federal law. State registration for charitable solicitation is a separate and parallel requirement. Most states require organizations to register with their attorney general or secretary of state before they solicit contributions from residents of that state — even a single donation from a state resident can trigger the requirement.

The National Association of State Charity Officials (NASCO) maintains a directory of state registration requirements at nasconet.org.

Step 7: File Form 1023 Within 27 Months

Once your organization is legally formed and you have your EIN, you can file Form 1023 electronically through Pay.gov. Filing within 27 months of your formation date secures tax-exempt status retroactive to the date your organization was formed. File after that window and your exemption starts on the filing date, not your founding date.

The Wiss advisory team works with nonprofit founders to navigate formation requirements, prepare organizing documents that meet IRS standards, and structure governance before the first board meeting.