Incorporate

The basic documents involved in incorporating a CDC are bylaws and articles of incorporation. Bylaws set out the geographic boundaries in which you will work, the types of people who can be members, the size of the board, the frequency of board meetings, how board members are chosen, and other details about the board, its committees, and its officers. Articles of incorporation include your general purpose (“mission”) your convening board of directors, your legal address, and other government-related accountability details.

Get Good Insurance

Incorporation may protect board and staff members from personal liability. However, when there is no absolute protection from personal liability. It is critical, therefore, that the organization maintain director and officer liability insurance (“D and O”), which protects the members of the board, individually, from legal issues and concerns.

Obtain Your Tax-Exempt Status

In order to raise charitable funds from foundations, corporations, and individuals, most organizations devoted to community economic development are set up as nonprofit corporations under Section 501(c)(3) of the IRS Code. This classification permits all donors to your organization to take a tax deduction for their contributions. In addition, you will need to obtain a federal tax identification (or EIN) number.

Use A Fiscal Agent

While waiting for your tax-exempt ruling you might decide to raise funds for your CDC. If so, you may need to ask another local nonprofit organization to serve as your fiscal agent.

Essentially, you use this organization’s tax-exempt status until you receive your tax-exempt certification letter from the IRS. The relationship should be established through a written Fiscal-Agent Agreement and approved by the board of directors of both organizations. Any grants that you are awarded or contributions received are then placed into your fiscal agent’s bank accounts and onto its balance sheet as restricted fiduciary funds. However, it is important to establish a separate account for your funds not only with the bank account, but also on the organizations Chart of Accounts. Your fiscal agent then disburses the funds to your group pursuant to your written request.

Note: It is common for the fiscal agent to charge a fee between 4 percent and 10 percent of your funds for this service.

Set Up Payroll And Tax Filings

If you have paid staff, then handling the payroll properly is necessary. This includes taking out all the mandated and optional withholdings: federal income taxes, state income taxes, unemployment taxes, health insurance, retirement funds, and any other obligations and benefits agreed upon by your organization and its staff.

< Back    More >