- Last Updated: Friday, 23 August 2013 14:57
- Written by Admin
Georgia Bikes is here to help!
Below, you will find information on the types of organizational structures you have to choose from and the steps you'll need to take for each one. If you ever have any questions, contact us and we'll be happy to help your organization get on its feet!
Click your answers to the questions below for step-by-step guidance on formalizing your organization:
Bicycle clubs are typically non-incorporated associations of riders who are primarily interested in riding for fun, fitness, and training. Clubs are a great way to enjoy cycling and improve physical fitness. Most have modest dues and allow non-members to participate in rides at no charge. Clubs typically do not engage in much advocacy, but they certainly can! If they have a formal structure, clubs are usually informal nonprofit associations or LLCs, but they can be incorporated nonprofits as well.
Advocacy organizations are engaged in activities that promote bicycling, seek to expand bicycle facilities (e.g. bike lanes, multi-use paths, bike racks), educate the public about safe cycling practices and road sharing, or other public benefit activities. Advocacy organizations that seek tax exempt status are typically classified as 501(c)3 organizations by the IRS. Examples of advocacy organizations in Georgia include Georgia Bikes!, Atlanta Bicycle Coalition, Bike Roswell!, and Savannah Bicycle Campaign.
Click on your answer in the three scenarios below for more information:
- Is your organization small and loosely organized (and is that how you like it?)
- Do you want your organization to have a formal structure, such as Bylaws and a Board of Directors?
- Do you want your organization to have a formal structure, such as Bylaws and a Board of Directors, and have tax exempt status with the IRS?
Nonprofit (information from about.com)
What is a Nonprofit Organization?
The term “nonprofit” simply refers to “not being commercial motivated.” Nonprofit organizations can, do, and should make profits. It is where profits come from, how much is made, and what is done with profits, that helps establish if the organization is a “nonprofit” corporation or a for-profit corporation.
There are three basic types of nonprofit organizations:
- Informal Nonprofit Organizations
- Incorporated Nonprofit (Corporation)
- Tax-Exempt, Incorporated Nonprofit Organization (Corporation)
You can form an “informal” nonprofit, simply by getting together with other people to provide support or services to benefit others. There are no special benefits in being an informal nonprofit, other than personal satisfaction in helping others, but there may be certain legal liabilities.
Be sure to check with an attorney before starting an informal nonprofit to discuss possible legal liability risks. If you plan to deduct expenses, receive donations, or charge any fees, you also need to talk with a tax accounting professional.
Informal nonprofit organizations are not, and cannot be, tax-exempt organizations.
This type of nonprofit is formed by incorporating in a particular state to form and be recognized as corporation. A corporation takes the place of individual ownership. The corporation “owns” itself, and therefore, can own its own property, have its own bank account, take out its own loan, and can continue on its own eve if the founder leaves the organization.
One of the major benefits of incorporation is that the corporation takes on legal liability and financial risks so that founders, officers, and board members have little or no liability (with the exception illegal acts, or gross fiscal misconduct).
Nonprofit corporations can be classified in many ways, including as a public benefits corporation, public charity, or educational foundation.
Nonprofit corporations may be formed to benefit members of an organization (a club, or mutual benefit society) or for some public purpose (such as a disaster relief, social assistance programs, or youth development programs).
A nonprofit organization is not automatically tax exempt.
Nonprofit corporations must file with the IRS as a separate step in order to receive tax exempt status. An organization cannot receive tax exemption unless it has first formed as a corporation with an accepted charitable structure and purpose.
Not all nonprofit organizations are eligible for tax exempt status. Only those that meet certain requirements, as defined by the IRS, will receive exempt status. You will need to complete an IRS Form 1023 to apply. The form is long, the process is expensive, and it can take up to one year to receive a decision. However, you can take advantage of the tax exempt status of another established nonprofit organization in an arrangement known as "fiscal sponsorship." Georgia Bikes will serve as a fiscal sponsor for appropriate organizations while they await their IRS tax exempt determination. Go here for details on working with us as your fiscal sponsor.
NOTE: Tax-exempt corporations are required to operate their organizations in certain ways, file a Form 990, and meet other IRS requirements, or risk losing their exemption status.
Just as with forming a for-profit business, you need to do a feasibility study, develop a mission statement, and write a strategic plan. In addition to the standard requirements involved in starting any business, to form a nonprofit you need to:
- Get an Employer Identification Number (EIN): This substitutes as a social security number for the corporation. You can apply for an EIN online through the Internal Revenue Service (IRS) website.
- Form a Board of Directors: All incorporated nonprofit organizations must have a board of directors.
- File Your Founding Documents: These include Articles of Incorporation and Bylaws.In Georgia, you file these documents with the Secretary of State Corporations Division.
The Limited Liability Company (LLC) is a business entity organized under state law that offers limited liability like a corporation along with the possibility of "passthrough"
taxation, unless it elects corporate treatment for federal tax purposes. Therefore, an LLC is a cross between a partnership and a corporation.
An LLC is owned by one or more interest holders called "members" and any member can exercise management rights. However, an LLC also allows the members to manage the entity or to designate specific managers who may or may not be members, to manage the entity as is done in many corporations. Like a corporation, an LLC has the advantage of "perpetual" existence — its business operations can continue despite the death of someone who owns a business interest. Ownership interests are transferred easily from one member to another.
As its name implies, the LLC provides limited liability for its owners similar to shareholders in a corporation. The LLC owner risks only their investment in the business. Other personal assets are not a risk, unless the owner has personally guaranteed the debt.
Under new IRS regulations, the LLC with more than one member will be taxed as a partnership unless it elects to be taxed as a corporation and the LLC with only one member will be disregarded for tax purposes. If it is treated as a partnership, the LLC's earnings will be apportioned to its owners and taxed at their personal tax rates, similar to the tax treatment of a limited partnership. However, it is possible to elect corporate tax treatment, whereby it will be taxed as a corporation.
The process of creating an LLC closely resembles the process of creating a corporation. Georgia law requires that "Articles of Organization" be filed with the Secretary of State. An LLC has an "operating agreement" which, like the agreement of partnership or LP, determines the conduct of the business, including the rights and powers of its members, managers, and employees and which generally allows the members to structure the company's affairs as they see fit, rather than as a statute requires.
A corporation is a legal entity that is separate from its owners, the shareholders. It is formed by filing certain documents with the Secretary of State and taking other actions required by the Code. A corporation may have perpetual existence, meaning that it continues to exist regardless of the status of the individual shareholders.
A corporation is composed of three different "players": the shareholders, directors and officers. It is critical to understand that these players have different responsibilities, obligations and authorities. The shareholders own the corporation and elect the directors. The directors govern the general affairs of the corporation and appoint officers who conduct the day to day business of the corporation. It is typical in smaller corporations for an individual to hold two or three "player" positions. In fact, one person can be the sole shareholder, director and officer.
Limited liability is the most important reason to incorporate. The debts incurred by the corporation cannot generally be collected from the officers, directors or shareholders of the corporation. This allows one to protect his or her personal assets from the debts and obligations of the corporation. However, oftentimes shareholders are called upon to guaranty payment of the debts of the corporation. It is important to keep personal and business dealings separate from the corporation's business in order to ensure that one cannot be personally liable for obligations of the corporation.
"For profit" corporations (other than S corporations, which are discussed below) are subject to what is know as "double taxation." This means that the corporation pays tax on the income earned by the corporation and its shareholders pay tax on dividends received from the corporation. An S corporation is not subject to double taxation. Rather, for tax purposes, it is known as a "pass-through" entity (as is a partnership). The term "pass-through" means that there is no tax on the corporation, but that the income and losses of the S corporation are passed through to the shareholders in proportion to their ownership interests whether or not they record a distribution. A corporation can be an S corporation merely by meeting certain eligibility requirements and making a special election with the IRS. These eligibility requirements include having no more than 75 shareholders who must be individuals or certain trusts or estates. Further, the shareholders may not be non-resident aliens and the S corporation can only have one class of stock. From a legal standpoint, an S corporation is no different than any other corporation. It is organized and operated like other corporations and has all of the characteristics of a corporation described above. From a tax perspective, however, they are very different. A tax professional should be consulted to determine whether the shareholders will benefit from causing a corporation to make an S election.
The corporate form of doing business does have some disadvantages. Sine the corporation is a separate entity, it must file tax returns and pay taxes on its income. A corporation must maintain certain records in order to ensure that its corporate status is maintained. This means additional accounting and legal costs associated with using the corporate form of doing business.
Organizational definitions courtesy of Corporate, Banking and In-House Counsel Committee of the Younger Lawyers Section of the State Bar of Georgia