How to Form an Arkansas 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 Arkansas? 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 Arkansas? 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 an Arkansas nonprofit organization.

Starting an Arkansas Nonprofit: Step by Step

Technically, the process for creating an Arkansas 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 Arkansas state law.

Arkansas has pretty simple laws for nonprofit names:

• Your name cannot include phrases that are prohibited by law or are contrary to the business purpose stated in your Articles of Incorporation
• Your name must be “the same as or deceptively similar to” the names of other entities in the state (basically it cannot be so close to another entity’s name that it would cause confusion)

If you want more information on Arkansas naming law, check out the Corporate Name Requirements and Limitations Section of the Arkansas Code.

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 Arkansas 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 Business Entity Search. Typically, if 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 Application for Reservation of Entity Name form. This optional filing costs $22.50 ($25 for mail-order documents) 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. But don’t wait too long; you can only renew this reservation once.

You can learn more through our guide on how to reserve an Arkansas 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.

Arkansas doesn’t have tons of rules about who can serve on the board. The two most important requirements are that your board must have a minimum of three initial directors (although your bylaws can dictate more as long as you meet the minimum). Beyond that, your board members must serve for a minimum of a year and a maximum of 6 years. Your bylaws can also dictate how each new director is appointed, how they’ll resign early if needed, how you’ll replace them, and more.

3. Appoint a registered agent

Every Arkansas 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.

Arkansas s pretty lenient criteria for a nonprofit’s registered agent, as found in the Registered Agent Section of the Arkansas Business and Commercial Law:

• Every entity must maintain a registered agent who can accept service of process on behalf of the entity
• The registered agent can be an individual resident of the state or a business entity with authority to do business in the state
• If the business fails to appoint an agent, or the agent is not available to accept it, the Secretary of State will act as the registered agent
• 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 Arkansas nonprofits, that means filing the Articles of Incorporation.

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

• Your nonprofit’s name
• Whether your nonprofit will be a religious, public benefit, or mutual benefit entity
• Whether or not your business will have members
• Legal language describing the powers of your organization
• Legal language describing the purpose of your organization
• How your assets will be distributed
• The name and address of your initial registered agent
• Name, signature, and address of each incorporator
• Contact information for the delivery of your annual report filing

All told, this form is pretty straightforward, and by the time you reach this step, you should already have this information on hand. The only potentially confusing section is the powers, purpose and asset distribution portion; you’ll see a lot of text: the IRS’s recommended language for your Articles to easily obtain tax-exempt status. This may be a good place to start, or you might get help from a lawyer to draft the right language for your business. Either way, this section isn’t as complicated as it seems on the surface: either use the recommended language or include your own.

Other than that, fill out the required information, and you’re pretty much set to go. If you prefer, you can file the form online instead. We actually recommend filing online because it keeps the filing fee at $45 instead of $50 for paper filings.

Processing speed: 2-3 days for online, up to 2 weeks for mail

Expedited processing: $50 extra

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

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. And Arkansas doesn’t have a bunch of specific requirements regarding your meetings; the Voting Section of the Nonprofit Corporation Act does detail voting requirements. As long as those are met, you can let your bylaws call all the other shots.

In most nonprofit’s regular board meetings, the president (and perhaps the CFO) report on the accomplishments and the financial standing of the business. Yours will probably do the same, but the exact specifics will vary based on your bylaws.

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 Arkansas 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 Arkansas 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. Afterwards, you’ll use that letter, along with a copy of your Articles of Incorporation and the bylaws, to apply for exemption from corporate income taxes with the Arkansas Department of Finance and Administration. Note that you cannot get exemption from the state sales tax, though. You will be expected to pay it and collect the sales tax for any goods or services you offer. For more information, you’ll want to consult the DFA.

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

There are also miscellaneous industry-specific taxes in Arkansas, such as fees for hard cider, paid fantasy sports, and other areas. In most cases, these taxes won’t apply to your nonprofit in the slightest, but it’s still a good idea to double-check with the Arkansas Department of Finance and Administration just to be sure you’ve covered all your responsibilities.

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

1. Fundraising

A lot of states require you to register your nonprofit in order to solicit charitable contributions. And Arkansas is no exception. You’ll need to register using the Charitable Organization Registration Form and submit it to the Secretary of State. There is no fee for this registration. Afterwards, you’ll be able to compliantly collect donations. Learn more about this requirement at the Charitable Entities resource page from the Secretary of State.

2. Lobbying

If your nonprofit (or its employees) will be lobbying for your cause in a formal capacity in return for monetary compensation ($400 per business quarter), then you’ll need to ensure that each paid lobbyist is registered. This registration must be submitted to the Secretary of State, and it’s due within five days of beginning lobbying.

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.

Arkansas, 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. Arkansas upholds all federally regulated industry licenses, and the Directory of Licensed, Certified, and Registered Occupations in Arkansas is a great place 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.

Arkansas state law also requires you to get a workers’ compensation insurance policy if you have employees. You can learn more about this requirement with the Arkansas Workers’ Compensation Commission.

Top Resources for Arkansas 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 Arkansas 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.

There aren’t a lot of state-level resources for nonprofits in Arkansas. There used to be an Arkansas Nonprofit Alliance, but it permanently closed in the wake of the pandemic and economic challenges. If you want local assistance, however, we recommend reaching out to your local university or business college; many of them have resources or support groups you can connect with.