Defining Your Nonprofit

Defining Your Nonprofit

A nonprofit is defined by its purpose, and this purpose has special legal implications, especially for nonprofits that seek tax-exempt status. Before you get started with filling out the forms and paperwork to start your nonprofit, you will need to define its purpose and choose a name.

Define Your Nonprofit's Purpose

Before forming your nonprofit organization, you should have a clear picture of your purpose and goals. You should then review the permissible purposes under the Internal Revenue Code and decide which type of organization you can be.

If your activities fit into more than one area, but the primary purpose is an exempt activity under 501(c)(3), the application materials should focus on the exempt activity.

Example: If you are starting an organization because you are concerned about pesticides that cause cancer, you should not focus on the fact that you may want to lobby for laws against pesticides that cause cancer. If your primary function is to research pesticides or to educate the public as to which ones may be harmful, you could qualify as a Section 501(c)(3) organization that does scientific research or public education. If you later wanted to lobby, you could do a limited amount within your organization or you could form a separate organization to conduct substantial lobbying.

If the goal on your application is one that the IRS feels can only be achieved by legislation, your 501(c)(3) application will be denied.. In such a case, you either have to form a non-charitable organization or redefine your goal.

Example: A goal such as abolishing nuclear weapons appears to be one that requires legislation. However, if educating the public on the dangers of nuclear proliferation is your goal, then depending on the programs you plan, you may have a better chance to qualify as a charitable organization.

Naming Your Nonprofit

While the activities and accomplishments of your organization will build up a reputation for its name, having a good name to begin with is a good way to appear more trustworthy.

In choosing a name, you should use the following guidelines:

  • Use the right suffix. Most states require that certain words or suffixes be a part of the name of a company, such as "Inc." or "Corp."
  • Do not use forbidden words. Certain words, such as "olympic" or "trust;' are not allowed to be a part of an organization's name under many states' laws.
  • Do not be too similar. While there might seem to be some advantage to having your name sound like a similar group, such as the American Cancer Society or the American Red Cross, this leaves you open to a lawsuit by the other organization and possibly legal action by your state's attorney general. You can use words such as cancer, heart, or diabetes if they relate to your organization's purpose, but do not intentionally make your name sound like another group's name.

Searching a Name

Once you have chosen the perfect name, you need to be sure that no one else has established legal rights to it. Many businesses have been forced to stop using their name after spending thousands of dollars in promotions because the name was already in use.

Legal rights can be established by registering a name as a trademark or by merely using the name. Consequently, you cannot be sure no one has rights to a name just by checking registered names. You need to check if anyone is using the name but has not yet registered it.

The following are places you should check:

  • Federal trademarks. First, you should check if anyone has registered the name as a federal trademark. To be sure that your use of the name does not violate someone else's trademark rights, you should have a trademark search done of the mark in the United States Patent and Trademark Office (PTO). However, now this can be done online at the United States Patent and Trademark Office website or with a business that specializes in filing for trademark protection.
  • Secretary of State. You should check with the secretary of state in the state in which you plan to register your corporation to see if the name is available. In some states, this can be done over the phone or on the Internet. In others, you must send a written inquiry.

No matter how thorough your search is, there is no guarantee that there is not a local user somewhere with rights to the mark.

Reserving the Name

After you have chosen the name for your new company and you have made sure that it is still available, you should reserve it before someone else does. You are allowed to reserve a name for a small fee in most states.

By forming your corporation, you have ensured that no other person can register a company with the same name in your state. Nonetheless, this does not stop someone from registering the name with another state or from getting a federal trademark for it.