AGA Incorporation

Hello, everyone –

I am Bob McCaw, Mary’s husband. Mary has told me that the Aquatic Gardener’s Association is interested in forming a nonprofit corporation. I would be pleased to help.

Mary tells me that the AGA is strongly inclined to become a nonprofit organization. Before going through the necessary steps, however, I think it is a good idea clarify what becoming a nonprofit corporation will (and will not) accomplish, and how much it will cost.

As a nonprofit corporation, the AGA will be able to engage in profit-making activities without paying federal or state income tax. The AGA may also enjoy other benefits:

The AGA will have a formal structure with directors, officers and by-laws. This structure may be beneficial to the organization.
The AGA may qualify for lower postal rates.
As a corporation, the individual members of the AGA will be protected if the AGA is sued.
The AGA can receive donations on a tax-deductible basis.

Note: the AGA will not necessarily be exempt from collecting state sales – state law varies depending where goods are sold. Furthermore, dues will not necessarily be tax-deductible.

It will require money and effort to form the organization and comply with annual reporting requirements. Here is what is required:

The AGA will become a nonprofit corporation in some state. In Massachusetts, this involves filing some simple paperwork and paying a $35 fee.
The AGA will file a form with the IRS asking for tax-exempt (“§ 501(c)(3)”) status. The IRS charges a $150 user fee, $300 if the receipts of the AGA are over certain thresholds. The purpose of the filing is to demonstrate to the IRS that the AGA’s purposes merit a tax exemption. Generally, it takes the IRS between two and six months to rule on the request.
The AGA will file some additional paperwork to qualify for state tax exemptions. Several forms must be filed in Massachusetts if the AGA incorporates here. Additionally, it may be a good idea to file for sales tax exemption if the AGA regularly sells goods in other states.
Annual filings will probably be required with the state of incorporation and the federal government. In Massachusetts, a simple annual report must be filed together with a $15 fee. A federal report – Form 990 – is required if the AGA’s gross receipts for the year exceed $25,000. The AGA will need to hire an accountant to prepare this form if it is required.

I will not charge the AGA for handling the paperwork except to the extent I incur out-of-pocket expenses, which should not exceed $50. In total, it should cost the AGA between $200 and $500 to become a nonprofit organization. On an ongoing basis, the AGA will probably have to pay an accountant to prepare annual financial statements and tax returns. I work with an accountant who generally charges about $250-$300 per year for this type of work. All these figures are based on incorporation in Massachusetts, and may differ somewhat if the AGA incorporates elsewhere.

If you are interested in incorporating the AGA, here is what I will need to go forward:

· I will need to speak with someone regarding the management structure of the AGA. The Articles of Incorporation and corporate By-laws will contain a number of details concerning management, such as the initial officers and Board of Directors of the AGA, their terms of office, and their powers. These matters will need to be decided before the AGA is incorporated.

· I will need to speak with someone who can supply me with financial data for the past few years. The nature of the AGA’s finances will affect the amount of the AGA’s filing fee with the IRS and the extent of its ongoing reporting obligations.

· The AGA will need to prepare a “mission statement.” This statement is important in order to convince the IRS that the AGA is worthy of a tax exemption.

· We will need to decide what state to incorporate in.

· I may need additional information as the process goes along.

If you are interested in proceeding, please let me know. Mary and I will be out of town until January 18. At that time, I will be happy to coordinate the process with the appropriate people and hopefully get the necessary paperwork filed within a few weeks.