In Alabama, you must form a nonprofit corporation by filing a specific type of incorporation document. Although the corporation will be subject to restrictions that do not bind for-profit corporations, Alabama nonprofit corporations enjoy significant tax advantages, and so do their donors. To receive federal tax benefits, you must apply separately to the IRS.
Forming a Nonprofit
To form a nonprofit corporation in Alabama, you must complete a Domestic Nonprofit Corporation Certificate of Formation, file it with the Office of the Judge Probate and pay the filing fee. The Certificate of Formation requires you to list the corporation's name, your name and address, the corporation's mailing and principal office addresses, the name of the corporation's registered agent, the purpose of the corporation, and the names and addresses of at least three directors. You must also prepare corporate bylaws and keep them on file. Corporate bylaws act as a corporate governance operating manual and must comply with Alabama state law.
Read More: How Do I Convert From a Nonprofit to an LLC?
Federal and State Nonprofit Tax Status
If the corporation was established for charitable, religious, educational, literary or scientific purposes, it can apply for federal 501(c)(3) nonprofit status by completing Form 1023. Form 1023 is a 28-page document that requires you to reveal extensive information about the corporation, its finances and its activities. If the IRS approves the application, the corporation will be exempt from most forms of federal income tax. The corporation may also declare itself exempt on its Alabama income tax return as long as it was formed for a 501(c)(3) purpose other than a literary purpose. Alabama may also exempt your corporation from other taxes, such as property and sales taxes.
Donor Tax Advantages
If you donate to a nonprofit corporation, you may deduct the amount of your donation from your taxable income if you itemize your deductions. If the donation kicks you into a lower tax bracket, your tax burden may be reduced by an amount greater than the amount of your donation. Generally, you may donate up to 50 percent of your adjusted gross income.
An Alabama nonprofit corporation has no shareholders, and its ultimate authority must rest with the directors. Day-do-day matters can be handled by members, and by officers and other employees. The officers must include a president, a vice-president, a secretary and a treasurer. Salaries must be reasonable so that taxation authorities will not consider them to be disguised profits. The corporation may not make loans to its directors, officers or members. The corporation's activities must be geared primarily to its tax-exempt purpose.
Directors, members, officers and rank-and-file employees of an Alabama nonprofit are not liable for the financial obligations of the corporation. These people may be held liable under extraordinary circumstances, however: if the corporation commingles corporate and individual funds, for example, or distributes profits.
An Alabama nonprofit corporation may be dissolved by the directors or, if there are voting members, by the voting members. The dissolution must be evidenced by a written resolution. The corporation must pay its creditors and transfer any surplus assets to another nonprofit organization with a similar corporate purpose. The corporation must then file a Certificate of Termination with the Alabama secretary of state and pay a filing fee.
- Sasser Sefton Tipton & Davis P.C.: Alabama Nonprofit Corporation Law
- Alabama Secretary of State: Domestic Nonprofit Corporation Certificate of Formation
- Alabama Association of Nonprofits: Starting a Nonprofit
- Law for Change: Alabama Nonprofit Corporations
- Tax-Rates.org: Alabama State Corporate Income Tax Rate (2012)
- Internal Revenue Service: Form 1023
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