How to Form a Michigan 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 Michigan? 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 Michigan? 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 Michigan nonprofit organization.

Starting a Michigan Nonprofit: Step by Step

Technically, the process for creating a Michigan 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 Michigan state law.

Michigan has pretty simple laws for nonprofit names:

• Your name cannot include language that implies your nonprofit conducts activities that go against state law or the purpose listed in your Articles of Incorporation
• Your name cannot “be the same as, or confusingly similar to” the names of other entities; basically, your name must be unique

If you’d like more information on Michigan nonprofit names, check out the Corporate Name Section of Michigan’s Nonprofit Corporation Act.

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 Michigan 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 can reserve it using the Application for Reservation of Name form. This optional filing costs $10 to submit, but once it’s approved, your name will be protected for six months. 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 Michigan 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.

Michigan doesn’t have a ton of rules about who can serve on the board; in fact, they’re a little more lenient than some states. The only explicit requirement is that your board must have a minimum of three directors at all times. You are also allowed to have directors who are 16 or 17 years of age, provided they constitute less than half of the number needed for a voting quorum.

Aside from that, your bylaws can dictate all the specifics of your board: the qualifications required for a director, how long each one will serve, how they’ll be appointed, how they can resign, and so on.

3. Appoint a registered agent

Every Michigan 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.

Michigan has pretty lenient criteria for a nonprofit’s registered agent, as found in the Registered Office and Registered Agent Section of the Michigan Business Corporations Act:

• Every entity that files with the Department of Licensing and Regulatory Affairs (both domestic and foreign) must appoint a registered agent
• The agent must be an individual resident of Michigan or a business entity with authority to operate in the 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 Michigan nonprofits, that means filing the Articles of Incorporation.

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

• Name and address of the person filing the form
• Name of the corporation
• Stated purpose of the corporation
• Whether the corporation is stock or nonstock (usually nonstock for nonprofits)
• A description of the nonprofit’s assets, how it will be financed, and whether it is formed on a membership or directorship basis (most use directors)
• Name and address of the registered agent
• Name and address of each incorporator
• Any additional provisions you wish to include
• Signature of each incorporator
• Name and business telephone of the person preparing the documents

All told, this filing is really simple to complete. All you really have to do is fill out the requested information, and you’re set to go. If you prefer, you can file the form online, too. The filing fee is $20 for nonprofits.

Processing speed: 24 hours for online filing, 3-5 for paper filings

Expedited processing: a wide variety, starting at $50 for 24-hour turnaround and $1,000 for 1-hour processing

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

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. Michigan doesn’t have a bunch of explicit legal requirements for your meetings, either. Basically, you’re legally required to have regular meetings, and you’ll have to provide ample notice to your board members if you hold any special meetings. Other than that, your bylaws will dictate the exact terms for your meetings.

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 legal requirements for board meetings, check out the regular or special meetings section of the Michigan Nonprofit Corporation Act.

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 Michigan 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 Michigan 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 status grants you exemption from both federal and state income taxes (Michigan automatically recognizes it). If you want exemption from the state sales and use tax, you’ll need to have your IRS designation handy, and you’ll also need to provide proof that the items purchased will be used exclusively by the nonprofit. For more information, check out the state’s Common Sales and Use Tax Exemptions and Requirements page.

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, nonprofits with employees will need to account for withholding and unemployment insurance taxes on the federal and state levels, among other areas.

There are also miscellaneous industry-specific taxes in Michigan, such as fees for motor fuel, tobacco, marijuana, 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 Michigan Department of Treasury just to be sure you’ve covered all your responsibilities.

That’s the basic gist of nonprofit taxes in Michigan. 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 Michigan’s requirements for each of those three areas.

1. Fundraising

A lot of states require you to register in order to solicit charitable contributions, and Michigan is no exception. All charities must register with the Attorney General before fundraising. Thankfully, there isn’t a fee for this registration. And only a few nonprofits are exempt from the registration requirement. You’ll also be required to renew this registration every year within 7 months after the close of your fiscal year.

2. Lobbying

If your nonprofit will be lobbying for its cause in a formal capacity, then you’ll need to ensure that each person lobbying has the appropriate registration. Michigan requires all lobbyists to register with the Bureau of Elections using the Lobbyist Registration form. Michigan does not maintain a registration requirement for full organizations.

Keep in mind that lobbyists are also required to submit lobbyist disclosures. For more information about lobbyist registration and reporting, check out the Secretary of State’s lobbyist information page.

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.

Michigan, 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. Michigan upholds all federally regulated industry licenses, and the State License Search Tool is a great resource to check out the state-level license requirements. It’s up to you to learn if there are any licenses 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.

Michigan 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 Department of Labor and Economic Opportunity.

Top Resources for Michigan 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 Michigan 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, you can always turn to the Michigan Nonprofit Association. In their own words, MNA “is a statewide membership organization dedicated to serving the diverse nonprofit sector through advocacy, training, and resources.”

To make the most of the MNA’s resources, you’ll want to join. But in return for your membership fees, MNA promises that you’ll gain over $4,000 worth of value from education, HR resources, technology, and more. Joining will be worth your while.