How to Form a Kentucky Nonprofit Corporation in 2023

What is a Nonprofit Corporation?

A nonprofit and for-profit corporation both have similar “nuts and bolts,” so to speak. Both businesses have a board of directors, CEOs, bylaws, annual board meetings, and the like.

But what makes a nonprofit stand out is its purpose. A business corporation typically organizes for financial gain; a nonprofit exists not to make money but to further a cause or reach a goal. Additionally, a business corporation gains investors by offering stock, which has the incentive of dividends and financial gain. Nonprofit corporations solicit contributions that don’t generate any income for those investors.

Well-known nonprofits include groups like Doctors Without Borders, Alcoholics Anonymous, and even your local YMCA.

It’s important not to confuse “nonprofit” with “no income.” Most nonprofits generate income from donations or day-to-day services. The distinction is that nonprofits use 100% of their income to pay expenses and reinvest in their cause. For example, the YMCA uses member dues and community donations for exercise programs, youth sport development, and maintaining their equipment and facilities. They also pay their employees.

Because of this, nonprofit corporations may apply for and receive a tax-exempt status (typically a 501(c)(3) designation), eliminating the corporation’s responsibility for income taxes at the federal and state levels.

Should you form one?

Before you dive into the rest of this guide, you should do a little soul-searching: should you even form a nonprofit in Kentucky? The goal is a noble one, but it certainly isn’t for everyone. And some concepts simply aren’t right for the nonprofit sector.

Here are some questions to ask:

• Will I be able to convince others to buy into this cause? How hard will it be to attract donors?
• Are there other existing nonprofits with the same goal?
  • If so, do they operate in Kentucky? Nationwide? Should I form a local chapter of their nonprofit instead?
  • Can I further this cause better or differently than they are?
• Can I hire employees for this cause, or will I rely on volunteers? How will I successfully recruit their help?

If you find yourself stumped by any of those questions, you may want to step back and get some help…or simply do some more thinking before diving in. But if you have answers to most of those questions, then you’re well on your way to starting a Kentucky nonprofit organization.

Starting a Kentucky Nonprofit: Step by Step

Technically, the process for creating a Kentucky nonprofit entity is pretty simple. It’s really just a matter of picking a few people and filing some paperwork (it’s the requirements immediately after forming the nonprofit that get complicated).

1. Pick & Claim a Name

Choosing a name is one of the most crucial decisions for starting your business. You want to pick a name that’s memorable, likable, and most importantly, compliant with Kentucky state law.

Kentucky has pretty simple laws for nonprofit names:

• Your name must include the words “Corporation,” “Company,” or “Limited” or one of their abbreviations
• Your name may not include words that imply or state that you are conducting activities prohibited by law or by your Articles of Incorporation
• Your name must be “distinguishable on the record,” or distinct from the names of other entities in the state

If you want more information on Kentucky nonprofit names, check out the Entity Name section of the Kentucky Revised Statute.

As a result, you have a lot of leeway to pick a name that will resonate with your target audience, potential donors, and of course, with you. The ideal Kentucky nonprofit name describes what the organization does, sounds good when said out loud, and just “sticks” in the minds of people who see it.

Whenever you pick a potential name, you should check whether it’s available using a Name Availability Search. Typically, if you type in your desired name and no exact matches show up, your name is available to use. This seems like a very basic step, but it’s crucial to streamlining your filings.

Once you nail down an available name that you like, you can reserve it using the Reservation or Renewal of Reserved Name form. This optional filing costs $15 to submit, but once it’s approved, your name will be protected for 120 days. That gives you plenty of time to prepare other business documents without losing your name to another business or nonprofit.

You can learn more through our guide on how to reserve a Kentucky business name.

2. Assemble your initial board

A nonprofit corporation is only as impactful as the people leading it. That’s why your initial board of directors is extremely important; you’ll want to pick a team of people that are just as passionate about your cause as you are.

More importantly, it’s helpful to choose a group with complementary strengths. For example, a medical outreach group might have a board of directors with three doctors, a nurse, a financial expert, a creative visionary, and a lawyer. The right board of directors will help your nonprofit thrive.

Kentucky doesn’t have a bunch of rules about who can serve on the board. The only explicit requirement is that your board must have at least three directors. As long as you meet the minimum three directors, your nonprofit can set out how many total directors you’ll have (and their qualifications) in the company bylaws. You can also dictate how each director is appointed, how long they’ll serve, how they might resign, and how you’ll replace them.

3. Appoint a registered agent

Every Kentucky entity—nonprofits, corporations, and LLCs alike—must appoint a registered agent. This individual accepts “service of process” from the state on your behalf. Basically, if the state ever needs to notify you regarding a lawsuit or an upcoming annual report due date, they’ll contact your registered agent. The agent forwards that notice to you.

Kentucky has pretty lenient criteria for a nonprofit’s registered agent, as found in the Registered Office and Registered Agent section of the Kentucky Revised Statutes:

• Every entity that files with the Secretary of State (both domestic and foreign entities) must appoint a registered agent
• The agent must be an individual resident of Kentucky OR a business with authority to transact business in the state
• The agent must sign to formally accept the appointment; alternatively, the registered agent can provide their consent in writing to the Secretary of State
• An agent must be continuously maintained

So you might ask, “Can I serve as my nonprofit’s registered agent?” Technically, you can. But we don’t recommend it. That puts your personal details (and often private details like your address and primary email) on the public record. You’ll also be busy running your nonprofit and pursuing your goals; you won’t want to tie yourself down to a registered address (especially for a tedious thing like service of process). We recommend appointing an individual you trust.

Or, if you prefer, you can hire a registered agent service instead. For a small annual fee, these services will act as your agent. That frees you up to focus on running your nonprofit.

4. File your Articles of Incorporation

Up until now, your nonprofit has just been an idea; it’s not recognized by the state government. Technically, businesses don’t “exist” until they file the appropriate paperwork. For Kentucky nonprofits, that means filing the Articles of Incorporation.

This one-page document requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:

• Your nonprofit’s name
• The purpose of the organization
• Name and address of your registered agent
• Name and address of each initial director (minimum of three)
• Name and address of each incorporator
• If the nonprofit is veteran run
• Signature of each incorporator
• Signature of registered agent, confirming the consent to appointment

All told, this form is pretty easy to complete. It’s simply a matter of filling in the requested information. And if you’ve made it this far, then odds are you’ve got most of this information on hand already. The only potential pitfall is accidentally forgetting to have your registered agent file the form. But as long as you’re on the lookout for that section, you should be fine. And thankfully, it’s an easy step to complete. When you file, be sure to include payment for the $8 filing fee.

Processing speed: varies depending on the time of year

Expedited processing: $50

Congratulations! Your nonprofit is now a recognized entity in Kentucky!

Prepare for & Hold Your First Board Meeting

After your Articles of Incorporation form is complete, it’s time to truly get your nonprofit’s activities underway. And that means it’s time for the first board meeting.

No two board meetings will look exactly the same; after all, every nonprofit has different tasks to accomplish. Kentucky does require that you hold regular meetings (and provide ample notice, to your directors, especially for special meetings). As long as you’re holding regular meetings, your bylaws can largely set the terms for everything else.

For example, your bylaws might require your president and CFO to report on the recent accomplishments and financial standing of the nonprofit. For more information on your regular (and special) board meetings, please consult the Kentucky Revised Statutes.

Your very first board meeting, however, will look a bit different. Here’s what you’ll need to accomplish:

• Draft and approve the nonprofit’s bylaws: The bylaws dictate exactly how your nonprofit will be run. This includes a detailed rundown of your corporate purpose, how your board will be selected and replaced, how you’ll raise funds, how you’ll hire employees or solicit volunteers, and much more (including a provision for how to amend the bylaws). To save time, you may choose to write a draft before the meeting and revise it when your full board is present. The important thing is that the board approves the final bylaws, making them the governing document for your nonprofit.
• Draft and approve a conflict of interest policy: Occasionally, one of your nonprofit’s contributors will have personal affairs that intersect with the activities of your nonprofit. A conflict of interest policy dictates exactly what happens in those situations, protecting both the nonprofit and the individual contributor.
• Appoint someone to take minutes at each meeting: Every Kentucky nonprofit corporation must establish and maintain a corporate record. That’s why every board should appoint someone to take minutes, or a summary of every board meeting, documenting what was said and what decisions were made.
• Finalize responsibilities for each board member: If one board member will be responsible for fundraising while another raises awareness for the cause, you should assign those roles at the initial board meeting.
• Appoint officers for the nonprofit (if needed): Some corporations choose to have their officers, such as the CEO or CFO, be members of the board. Others appoint non-board members to fill these roles, creating a division between the governance and day-to-day operations. Either choice is fine, but these vital roles should be filled.

This initial meeting will be a very full, technical day (or even series of days!), but nailing down these aspects will help you establish a nonprofit that’s compliant with Kentucky state law and efficiently run.

Take Care of Taxes

Taxes as a nonprofit are a tricky beast; frankly, we recommend getting advice from a tax lawyer, accountant, or similar consultant to make sure you cover all your bases! But let’s take a quick look at the basics for nonprofit taxes.

First, apply for tax-exempt status on the federal level

If you don’t file for tax-exempt status, you’ll technically be liable for corporate income taxes. And that’s the last thing a non-profit wants. That’s why you’ll need to start out by filing Form 1023 or Form 1024, which are the applications for charitable, religious, or educational groups and other nonprofits respectively. After that application is completed, you’ll play the waiting game. The IRS can take up to 180 days to approve or reject your application, so we highly recommend completing the application correctly the first time.

Once your application is approved, you’ll receive a letter of tax-exempt status from the IRS. This will exempt you from the state and federal income taxes. But if you want to be exempted from state sales taxes, you will need to apply for and maintain a Sales Tax Certificate of Exemption. After you have this certificate, you’ll have to present it to vendors in order to get exemption from sales tax on a purchase.

Obtain an EIN

An EIN, or an Employer Identification Number, is an important identifier to get; it acts a bit like a Social Security Number, but for a business entity. Unfortunately, you aren’t assigned one automatically.

Thankfully, it’s free to apply for an EIN online with the IRS. Even if you don’t plan to have employees right away, it’s a good idea to have this number from the get-go. Miscellaneous forms, such as license applications or even bank accounts, may request this number.

Account for employment & miscellaneous taxes

No two businesses are alike, so each nonprofit will have slightly different taxes. That said, Kentucky nonprofits with employees will need to account for withholding taxes and unemployment insurance taxes on both the state and federal levels.

There are also miscellaneous industry-specific taxes in Kentucky, such as fees for vapor productos, tobacco, and more. In most cases, these taxes won’t apply to your nonprofit, but it’s still a good idea to double-check with the Kentucky Department of Revenue just to be sure you’ve covered all your responsibilities.

That’s the basic gist of nonprofit taxes in Kentucky. We still recommend consulting with a tax professional, as they’ll be able to give you specialized advice for your unique situation.

Register for Licenses and Permits

Licenses and permits are especially important for nonprofits. And there are three major categories of potential permits and licenses: fundraising, lobbying, and licensing. Let’s walk through Kentucky’s requirements for each of those three areas.

1. Fundraising

A lot of states require you to register in order to solicit charitable contributions. Kentucky is no exception. Prior to asking for any contributions, you will need to register with the Kentucky Attorney General. There isn’t a filing fee for this registration, either.

2. Lobbying

If your nonprofit will be lobbying for its cause in a formal capacity, then you’ll need to ensure that every person lobbying has the appropriate registration. All lobbyists must register with the Ethics Commission. If you “employ” lobbyists, you’ll also be required to register the entity itself. Regular reports are also required. To learn more about these requirements, check out the Kentucky Legislative Ethics Commission.

3. General licensing

Nonprofits are tax-exempt, but they aren’t exempt from licensure requirements, whether that’s for an industry-specific license or a state general business license. So you’ll need to get the licenses that apply to your unique organization.

Kentucky, unlike some states, doesn’t have a general business license that every entity in the state needs to get. So most license requirements come at the industry level instead. Kentucky upholds all federally regulated industry licenses, and Kentucky OneStop is a great place to check out the state-level license requirements. It’s up to you to learn if there are any licenses required for your industry, so be sure to complete this step!

Whenever you apply for a license or permit, we recommend inquiring about the requirements for renewing your licenses. That way you’ll know exactly how often you’ll need to renew your licenses (if applicable).

Meet Insurance Requirements

We highly recommend that every business entity maintain at least some sort of general liability policy — even nonprofit entities. There’s always a chance that something can go wrong (no matter how careful you are).

A natural disaster can happen, a break-in might cost you some important equipment, or an accident during day-to-day operations might cause a broken bone and damaged property. A general liability policy will protect your business if something like that happens.

Kentucky state law also requires you to get a workers’ compensation insurance policy if you have one or more employees working for your nonprofit. You can learn more about this requirement with the Workers’ Compensation pages by the Kentucky Labor Cabinet.

Top Resources for Kentucky Nonprofits

Nonprofit work isn’t always easy, but you never have to go it alone! There are dozens, if not hundreds of nonprofit resources available to Kentucky organizations.

On the national level, there’s the National Council of Nonprofits. They exist to advocate for and strengthen nonprofits throughout the country by providing nearly comprehensive resources, teaming up with each state’s nonprofit network, and keeping you aware of the trends in policy and public opinion. It’s also a great place to peruse the latest reports and data about charitable giving and advocacy in the U.S.

On the state level, turn to the Kentucky Nonprofit Network. In their own words, the Kentucky Nonprofit Network exists “to strengthen and advance our sector through a unified public policy voice, education, technical assistance, networking opportunities, and sharing of best practices.” The KNN does require membership, but they offer a wide variety of learning tools and nonprofit advocacy programs that make it worthwhile.