There are different types of nonprofit organizations functioning in Hawaii, including educational, human service oriented, religious, animal welfare, and others. What they all have in common is the focus on helping and supporting the Hawaiin community. Hawaii Rise Foundation provides assistance for ……… . Also from time to time, Hawaii Rise Foundation acts as fiscal sponsors for other Hawaiin Non-Profits on the islands. This article covers some of the basics needed to start a nonprofit organization in Hawaii.
As a 501(c)(3) nonprofit, you will be exempt from federal corporate income tax, have limited liability, and gain the much-needed credibility needed for fundraising. These perks are crucial because of the growing needs of communities and dwindling government resources. Nonprofits often have to do more with less – so every form of assistance helps. These state tax exemptions carry over to cover public charities mission and outreach.
Hawaii Rise Foundation Hawaii Non-profit organization
Hawaii Rise focuses on community development, assisting youth, and the elderly through community workshops, online education, and events.
The Need for Hawaii Nonprofits
The government can only do so much with its limited resources and a growing population. There are a number of factors on how a non-profit organization can affect the quality of life for a community. This article should serve for educational purposes on starting a non-profit in Hawaii. Our goal at Hawaii Rise Foundation is to rise together and grow our education outreach for our youth and elderly community. We encourage Hawaii organizations to work together when appropriate especially if goals are aligned.
Regular businesses are focused on growing their bottom line and can’t be expected to serve the public without putting profits on the backburner. This is where Hawaii nonprofits come in.
The nonprofit sector is able to act faster than governmental bodies and doesn’t have the same bureaucratic barriers preventing them from working together when people need immediate help.
Moreover, they don’t have to wait for a majority vote to put certain plans into action. Instead, a small group of people can provide help immediately and independently.
The carefully designed structure of a 501(c)(3) provides it with a mechanism for promoting individual initiates for the public good. They provide relief to people when they have no other alternative. Whether it’s for health, arts, humanities, or education, a Hawaii nonprofit truly fits the definition of ‘by the people for the people.’
Nonprofits also raise awareness of social problems in society. They are designed to overcome these issues, promote awareness, and create an incentive for change.
In general, a Hawaii nonprofit will generate about 10% of its income from donations. The rest comes from grants, sales of products and services, contracts, and investments. It’s easy to think that nonprofits receive the bulk of their income from donations, but in reality, it only accounts for a small source of income for these organizations.
How to Start a Nonprofit in Hawaii
The first step is to form a Hawaii nonprofit. No matter the type of organization you choose to support, it should be a registered 501(c)(3) with a federal tax identification number. Although this is a complicated process, working with registered Hawaiin non-profits ensures your donations are put back directly in the community.
Here are the steps to forming a non-profit in Hawaii.
This is a crucial first step in forming a Hawaii nonprofit organization. This is where you will install the board of directors. The IRS requires nonprofits to identify at least three unrelated individuals to make up the nonprofit’s governing body. You should also be aware of any age or residency requirements.
Choosing a Name for the Hawaii Nonprofit
Make sure the name you want isn’t already taken by doing a simple name search on the official website. You can do a business name search from the official database here.
File the Hawaii Articles of Incorporation
Your Hawaii nonprofit’s articles of incorporation will officially mark the beginning of your organization. They create information about where and when the nonprofit was formed and document necessary information to verify its existence. You must draft nonprofit articles of incorporation and submit them to the Department of Commerce and Consumer Affairs. You can submit these documents online or by mail. You will pay a $26 filing fee (at the time of writing).
To ensure that you will receive a 501(c)(3) tax-exempt status from the IRS, you will need to use the exact language provided by the IRS – these will be carefully monitored before granting you the status. It is important to meet eligibility requirements from the start to avoid making any amendments later or risk getting your application rejected. The standard processing time in Hawaii is about ten business days. If you want to speed things up, you can pay the $25 expedition fee.
Your application to the IRS for 501(c)(3) exemption will require the adoption of bylaws. Bylaws are the rules that clearly outline the operating procedures of the nonprofit organization. Think of them as your organization’s operating manual.
The bylaws typically condition the following provisions detailing:
- The powers of the board
- Duties of the directors
- How directors are elected
- How the board can take action
- How board meetings are held and conducted
- The duties of each officer
- The authorization of board and nonboard committees
- The level of indemnification provided by the nonprofit to protect its directors, officers, and employee
- Reports that should be made to directors and officers
If your Hawaii nonprofit has voting members, the bylaw will need additional provisions about member rights and processes. It’s better to discuss such a structure with a lawyer.
For obvious reasons, the language used here should be consistent with the incorporation and state law articles in Hawaii. When your Board of Directors meets for the very first time, you should review and ratify the bylaws because they will serve as a roadmap for the governance of your Hawaii nonprofit. Once they have been adopted, safely store them for later reference.
Apply for State and Federal Tax Exemptions
To seek federal tax-exempt status for your Hawaii nonprofit, submit the Application for Recognition of Exemption to the IRS. This is arguably the most difficult step in turning your nonprofit dream into reality. You may be familiar with 501(c)(3) nonprofits, foundations, and charities. You can apply using Form 1023 or Form 1023-EZ. Make sure to review the criteria for each application before submitting it. Other types of nonprofits, including 501(c)(4) and 501(c)(6) apply using Form 1024. If this process is too daunting for you, we recommend hiring a professional to help you out. Finding someone who has the expertise to ensure you can fill the application correctly and accurately.
You will have to pay either $275 or $600 (depending on your organization). Prepare to wait for 3 to 6 months or more as the IRS takes its time to examine your nonprofit’s history, purpose, and formation documents. If your organization obtains a 501(c)(3) federal tax-exempt status, you won’t have to pay state income tax. However, you will need to apply to the Hawaii State Tax Commission if you seek a general tax exemption and any other state tax exemption that may apply to your nonprofit. These include exemptions from property, sales, income, and other state taxes. You will have to file with Hawaii’s Department of Taxation to secure tax exemption from the state.
Apply for an EIN (tax identification number)
The EIN or FEIN is a number used to identify your business entity. Think of the EIN as the social security number of your organization. The EIN is required for you to open a bank account. It is required for tax purposes on Federal and State levels. More importantly, if you plan on hiring employees for the company, then you won’t be able to do so without the EIN number.
The IRS can provide you with an IRS number free of charge after you form the company. This can be done online or by mail.
Obtain Licenses and Submit Annual Reports
The State of Hawaii does not issue a statewide business license. You may require a local license or permit from your city or county.
In addition, you will have to submit an annual report to the Department of Commerce and Consumer Affairs if you want to keep your nonprofit in good standing with the state. The report will provide up-to-date information related to your nonprofit, and include contact information and the names of current directors.
You can file the annual report by mail for $6.00, online by paying $3.50, or in person at the Secretary of State’s office for $6.00. You can also apply for expedited processing for an additional $25.
Open a Business Bank Account for Your Hawaii Nonprofit
It may be tempting to conduct business from your personal wallets during the first few days of operation, but this is a bad idea because it opens you up to potential legal issues. One of the primary goals of forming a nonprofit is to separate your business assets from your personal assets.
This is why you should open a business bank account before conducting any transactions on behalf of the nonprofit. The bank account makes it easier to adhere to the fine line between your personal assets and business assets, which is essential in protecting yourself from any lawsuits.
Most banks will require a copy of the following:
- Your EIN issued by the IRS
- Articles of incorporation
Some banks may require a resolution that authorizes you to open a bank account (this mostly applies if your nonprofit has several directors and officers).
And while you’re at it, obtain a business credit card and debit card. This will help you separate your personal and business expenses. It is also an important first step in building your company’s credit history, which will be used to raise capital.
Hire a Business Accountant
Make sure that the business accountant is well-versed in applicable federal and state taxes to help you avoid penalties, fines, and other costly tax errors. The accountant will also prevent you from overpaying on taxes.
In general, a business accountant makes bookkeeping and payroll much easier, giving you more time to focus on growing your actual business.
You will also find it easier to manage business funding and learn more about your cash flows, including previously undiscovered areas of profit and loss.
Apply for Insurance
Much like a business bank account, business insurance is another important step that helps you manage risks and focus on growing your business.
Some of the most common types of business insurance are:
General Liability Insurance: This insurance policy protects your business from damage claims. For instance, it will cover medical expenses if someone gets injured at your nonprofit. It also covers advertising injury claims if someone alleges that your nonprofit hurt their ability to generate an income.
Professionals Liability Insurance: If your nonprofit provides a professional service (such as consultancy), it is helpful to get professional liability insurance to cover malpractice claims and any other business errors that you may encounter.
Workers’ Compensation Insurance: This type of insurance provides coverage for employees who have encountered a job-related illness, injury, or even death.
Properly Sign Contracts and Agreements (for them to be enforceable)
Success as a nonprofit is predicated on the accuracy of your contracts and agreements. Most people think that signing a contract is merely a formality and they let their guard down at this crucial point. The truth is that a misplaced sign or could open a can of worms and leave you open to personal liability!
Make sure to include the following information whenever signing legal documents on behalf of your nonprofit:
- Name of your organization
- Your signature (should be consistent)
- Your name
- Your position at the company
This ensures that you are signing on behalf of the nonprofit, and not as yourself.
Wrapping Up – How a Hawaii Nonprofit Gives Back to the Community
Successful nonprofits have the business structure and resources needed to help the less fortunate and contribute to the common good of their community.
There are many ways that a nonprofit can support the community, beyond just writing a check, this includes:
- Donating to a food bank
- Donating a delivery vehicle
- Donation a portion of the sales to charity
- Donating a workspace on the business premises for free
- Offering business services for free
- Starting a local startup incubator to support and fund young entrepreneurs
When you decide to open a Hawaii nonprofit, you’ll realize there are different ways of giving back to the community and making positive contributions.
Need more information about starting a Hawaii nonprofit? Our experts would love to help you out, get in touch here.