Since nonprofit businesses are intended to provide important charitable services to communities, one might think that states would make starting one as easy as possible, but this is not the case. All states require that anyone wishing to start a nonprofit jump through administrative hoops on both state and federal levels.
In South Carolina, organizing as a nonprofit corporation requires more than a few important steps. These are set out in detail in the South Carolina Nonprofit Corporation Act. They start with selecting a name for the new company and end with registering with the South Carolina Secretary of State for Charitable Solicitation.
It will also be necessary to apply for tax-exempt status with the IRS under section 501(c)(3).
Pick a Name for the Nonprofit
Every business needs a good name that reflects its mission and goals, and nonprofits are no exception. A strong business name is important since it will be part of the nonprofit's brand. Pick a clear and straightforward business name that reflects the purpose of the nonprofit, avoiding complex, confusing or misleading names.
These precepts are not part of South Carolina law, but they are central to getting attention for the company.
South Carolina Naming Rules
South Carolina, like most states, regulates naming a nonprofit. The state's laws on nonprofit names focus on preventing community confusion about which business is which.
A nonprofit's name cannot be a name already on record as being used by another company in the state, or a name so similar to an existing name that the two are difficult to distinguish.
Fortunately, South Carolina makes it relatively easy to search state business records to determine whether a particular name has been taken.
Searching for an Available Name
Make a short list of potential names. With this in hand, visit the Business Name Search page of the South Carolina Secretary of State's Business Entities Online website to determine if the name is distinguishable from other business names in South Carolina.
Type in the name you've chosen and push search. A list of identical or similar South Carolina business names will appear, names that are already in use. If another business entity is already using a potential name, move to the second choice.
When one of the names on the short list is available, registering it prevents others from using it. Although not legally required, it can be useful to check online to see if the selected business name is available as a web domain. Even if the nonprofit has no immediate plans for a business website, it's a good idea to reserve the URL.
Select a Type of South Carolina Nonprofit
There are several types of nonprofits that can be incorporated in South Carolina. Some are created under article 501(c)(3) of the Internal Revenue Code, and these are the only ones that can obtain tax-exempt status. Others are considered 501(c)(4), (6), or (7) nonprofits under the Internal Revenue Code and are taxable.
All nonprofits hoping for tax-exempt status must be charitable organizations. For example, they can be food banks, daycare centers, animal rescues or environmental groups and created to pursue any of these activities:
- Religious, charitable, educational, literary or scientific.
- Fostering national or international amateur sports competition.
- Testing for public safety.
- Prevention of cruelty to animals or children.
Nonprofits That Cannot Be Tax-exempt
Nonprofits that cannot be tax-exempt include:
- Trade and Professional Associations: 501(c)(6) organizations under the Internal Revenue Code. These are usually business alliances like retail chambers of commerce, merchants associations or real estate boards.
- Civic Needs and Social Welfare Organizations: 501(c)(4) organizations under the Internal Revenue Code. These might be social action organizations, downtown improvement associations or civic groups formed to improve the overall good and welfare of people in the community.
- Social and Recreational Clubs: 501(c)(7) organizations
under the Internal Revenue Code. These could be garden and variety clubs, hobby clubs or amateur sports clubs.
Be sure that the name selected for the nonprofit reflects its legal purpose. It should not contain any language implying or stating that the organization is formed for a purpose other than what is permitted by the organization’s Articles of Incorporation.
South Carolina Corporate Structure
To start a nonprofit corporation in South Carolina, it's necessary to learn the state's requirements for nonprofit corporations. These include selecting:
- Board of directors.
- Corporate officers.
- Registered agent.
Incorporators sign the formation documents for the nonprofit, including the all-important Articles of Incorporation. At least one incorporator is required for a South Carolina nonprofit corporation, but it is fine to have more.
Role of a Board of Directors
The Board of Directors is charged with governing the organization. The board members attend board meetings, as well as committee meetings, and organize fundraising efforts.
South Carolina law mandates a minimum of three, unrelated directors, but, again, more is perfectly acceptable and very common. Directors in South Carolina must be naturalized citizens, but they need not be residents of the state.
Selecting Corporate Officers
As far as corporate officers go, a nonprofit must fill these roles:
These roles need not be held by three, separate people. One individual can hold multiple offices in the nonprofit. In fact, one person can serve as the president, treasurer and secretary.
Appointing a Registered Agent
A registered agent can be either an individual or a company. The agent is responsible for receiving legal notices for the new nonprofit organization. The registered agent must live, work, or, if a company, be located in South Carolina. They must also keep regular business hours so that it is not difficult to serve them with papers if necessary.
File Articles of Incorporation
A nonprofit corporation officially comes to life when the incorporators file the articles of incorporation with the South Carolina Secretary of State. There is a state form for articles of incorporation, available on the Secretary of State’s website.
The articles must set out core information about the nonprofit, including:
- Name of the nonprofit.
- Name and address of the registered agent.
- Main address of the nonprofit.
- Whether the nonprofit has members.
- Whether the nonprofit will apply for 501(c)(3) status.
- Effective start date of the nonprofit if different from the filing date.
Additional Requirements for the Articles of Incorporation
Two additional statements must be included in the Articles of Incorporation in order for a nonprofit to receive the federal tax exemption:
- Description of nonprofit’s purpose or a mission statement that falls under the categories or provisions set forth by the Internal Revenue Service of a mutual, public benefit or religious corporation.
- Dissolution clause stating how the organization’s assets will be distributed upon dissolution.
The Articles of Incorporation must be signed by the nonprofit's registered agent as well as all incorporators and directors. The paperwork can be filed online or be printed out and mailed, with a self-addressed stamped envelope. A small filing fee is required.
Obtain an Employer Identification Number
Individuals have Social Security Numbers (SSNs), but nonprofits and other companies have Employer Identification Numbers (EIN)s. These are 9-digit numbers that a company needs to have to file federal taxes and hire employees.
The IRS makes it very easy to obtain an EIN. The person filing must fill in IRS SS-4 form, available on the IRS website. They can file the form online and receive the number immediately. It is also possible to print the form and file it by mail or fax, or to phone in the request.
These alternate methods of filing do not yield immediate results; it will be between four to five weeks before the EIN arrives by mail.
Filing Requirements for an Initial Annual Report
Once the EIN arrives, the nonprofit must file an Initial Annual Report of Corporations (CL-1 Form) with the South Carolina Department of Revenue. Both the EIN and a $25 fee are required with this form.
Nonprofit Formation Organizational Meeting and Bylaws
South Carolina law requires a nonprofit’s initial directors to call an organizational meeting after filing the Articles of Incorporation in order to appoint the officers and adopt bylaws to govern operations and carry on other initial business.
For 501(c) status, the nonprofit must develop bylaws, a set of rules establishing the basic rules for managing operations. Generally bylaws address the duties and responsibilities of the directors, members and officers, including their required qualifications, powers and duties. The wording should be the same as is reflected in the Articles of Incorporation.
What to Include in the Bylaws
A nonprofit's bylaws should address:
- Board of Directors: Bylaws should define the role the board will play within the nonprofit, and detail board elections, the number of directors and term limits.
- Membership: If the nonprofit is to have members, the bylaws must define their role, eligibility for membership, dues and benefits.
- Board Meetings: Bylaws should state what constitutes a quorum for meetings and how often meetings will be held.
- Conflict of Interest Policy: A nonprofit differs from a for-profit company in that it is not permitted to provide a financial benefit to board members. A Conflict of Interest policy must limit the ways board members and staff can act on behalf of the organization.
Apply for Tax Exemptions
As a nonprofit, the organization may qualify for tax-exempt status regarding federal taxes. File an application with the Internal Revenue Service (IRS) using either Form 1023 with a filing fee of $60 or 1023 EZ for smaller organizations with a filing fee of $275.
All 501(c)(3) nonprofit corporations that receive a federal tax exemption are also exempt from paying South Carolina state corporate income tax. The nonprofit accomplishes this by mailing the tax determination letter sent by the IRS approving its tax-exempt status to the South Carolina Department of Revenue.
In South Carolina, nonprofits are also exempt from paying state and local sales taxes for items purchased for resale. Note that items purchased to be used by the nonprofit itself are not tax-exempt in South Carolina. File the state form ST-387 for this tax exemption. There is no fee.
Register for Fundraising and Charitable Solicitation
Nonprofit corporations need funds to operate, and they often get them by fundraising. Before the nonprofit raises funds by charitable solicitation, it must first register with the South Carolina Secretary of State. How to do this? The nonprofit must submit a registration Statement for a Charitable Organization, then continue doing so annually.
The filing fee for the registration statement is $50. If this is done online, there is an additional fee of $2. Don't forget or delay the registration process since late registration can result in a fine of $2,000.
Once a nonprofit is registered with the South Carolina Secretary of State, it appears in the state’s Charities Brochure. When potential donors want to check the status of a nonprofit, all they have to do is look in the brochure to feel confident in making gifts.
- South Carolina Secretary of State: Business Entities FAQs
- South Carolina Legislature: South Carolina Code of Laws: Title 33: Chapter 31: South Carolina Nonprofit Corporation Act
- South Carolina Secretary of State: Business Filings
- South Carolina Secretary of State: Downloadable Paper Forms
- IRS: Apply for an Employer Identification Number (EIN) Online
- Donor Box: Start a Nonprofit in South Carolina
- Chamber of Commerce: How to Start a Nonprofit in South Carolina
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.