From financial challenges to meeting all your goals, you’ll inevitably need some help in the form of staff members and volunteers. One thing you’ll need to consider is hiring or appointing a registered agent.

A registered agent for a nonprofit serves a crucial purpose, and it’s a mandatory part of establishing a nonprofit in every state. 

What’s a Registered Agent?

A registered agent will be responsible for keeping in touch with the state for legal purposes. You can identify an individual to fill this role, or you could hire a commercial agent service to fulfill the role. Either way, this agent needs to be able to act as a representative for your nonprofit organization. They also need to be able to fulfill several responsibilities, which will outline below.

Responsibilities of a Registered Agent for Nonprofits

The main role and responsibility of a registered agent is to keep your nonprofit organization in good legal standing with your state. Your registered agent should be available during regular business hours because he or she will be in charge of receiving any and all legal documents that get sent over to your nonprofit. These documents might include tax updates, compliance notices, or other information from the state.

Once the registered agent gets these documents, he or she will need to quickly forward them to your organization’s leadership to ensure that they get addressed in a timely manner. The registered agent should also create a copy of these documents.

The registered agent will also need to hold regular business hours because they’ll be your representative if a third party, the government, or a state agency attempts to contact your nonprofit. You want your registered agent to be available at all times during business hours (within reason) to ensure that your nonprofit is well represented when it needs to be.

Imagine your nonprofit got into a sticky situation and is now facing a lawsuit. If your nonprofit receives a summons, it will go directly to the registered agent. If you don’t have a good registered agent, you could miss out on an extremely important and time-sensitive document like the court summons.

Considering the weight of the responsibilities of a registered agent, you’ll want to make sure the individual or agency you delegate this responsibility to is reliable and dependent. What’s more, they’ll need to be trustworthy since they’ll be seeing proprietary documents regarding your nonprofit.

Does Your Nonprofit Have to Have a Registered Agent?

In short, yes, your nonprofit must have a registered agent to remain a valid nonprofit organization. Not only do you need to identify one while registering your nonprofit to begin with, but you’ll also be required to re-identify this registered agent when you renew your registration. Different states have different rules, but most states will require a renewal at least once a year.

The following states also require that you include a charitable solicitation disclosure listing your registered agent when asking for donations:

• Florida
• Georgia
• Maryland
• Mississippi
• Nevada
• New Jersey
• New York
• North Carolina 
• Pennsylvania
• Virginia
• Washington
• West Virginia
• Wisconsin

Can I Be My Own Registered Agent For My Nonprofit? 

Yes, you can list yourself as the registered agent of your nonprofit when you file your charitable organization registration documents. Keep in mind that you cannot put the nonprofit itself here--the registered agent must be an individual with an address in the state where the registration occurs. 

Smaller nonprofits often list the founder as the registered agent, which makes sense. As the organization grows, however, it might make more sense to delegate that responsibility to a different staff member. Here’s what you should consider when looking for a registered agent:

• An individual who will maintain a stable address for the foreseeable future
• Reliable
• Dependable
• Strong organizational skills
• Must be 18-years-old or older
• Must be able to work most business days during regular business hours
• Must be able to fulfill the duties and responsibilities of a registered agent

Of course, you could also opt to outsource the responsibilities of a registered agent altogether and hire a nonprofit registered agent service. These types of companies can help ensure that your nonprofit remains compliant. They also offer stable, reliable, and consistent service. Depending on the size and scope of your nonprofit, hiring an entire agency might make more sense. Keep in mind that this option is likely to be the most expensive, too.

Who should be a Registered Agent for a Nonprofit?

If you decide not to be your own registered agent, who should you nominate as your nonprofit’s registered agent? You should know that many nonprofits decide to hire an entire agency to serve as their registered agents. Others opt to hire an individual like an accountant or lawyer.

The Pros and Cons of a Registered Agent Service

One of the biggest benefits of hiring a registered agent service is that you’ll have more peace of mind knowing that the company you’ve hired will take care of all the ins and outs of handling your nonprofit’s legal challenges. You’ll know that they’ll keep you compliant with the law. You’ll also have a lot more flexibility going with a service because they’ll likely have multiple staff members who can handle the same tasks.

While those are great perks, you will end up paying for them all because a registered agent service often costs more than hiring an individual who offers registered agent services like a business accountant or lawyer.

How Much Can a Registered Agent for Nonprofits Cost? 

There are a variety of costs associated with having a registered agent for nonprofits. The most important cost is the initial filing fee, which can range from a few hundred dollars to a few thousand dollars. The ongoing costs of a registered agent for nonprofits can vary depending on the size and complexity of the organization but are typically much lower than the initial filing fee.

Another important cost to consider is the annual renewal fee, which can also vary depending on the size and complexity of the organization. Finally, additional costs may be associated with hiring a registered agent for nonprofits, such as the cost of office space and supplies.

Overall, the costs associated with having a registered agent for nonprofits are relatively small compared to the benefits they provide. A registered agent can help an organization stay in compliance with state and federal laws, save money on filing fees, and provide valuable assistance in the event of an audit or investigation.

While family members can be involved in a nonprofit, there is a caveat. The IRS will flag and question any nonprofits that are led and controlled by multiple family members. The IRS defines relationships among board members in relation to blood, marriage, or outside business connections.

If you have family members on a nonprofit board, you also need to have non-family members. To receive 501(c)(3) approval, a nonprofit board must consist of over half non-family members. More specifically, family involvement in a nonprofit is legal as long as at least 51% of your board of directors are unrelated.

What are the 501(c)(3) Board of directors requirements?

A 501(c)(3) nonprofit organization is exempt from paying federal income tax. Donations to these public charities are also tax deductible. This is why the IRS implemented strict requirements for a company to receive this status.

When it comes to the board of directors, keep in mind that…

1. The specific amount of directors required for a nonprofit corporation is variable, depending on the state where the nonprofit is incorporated. For example, New York requires at least three directors, while it is enough in Delaware to only have one. Check our full overview of all states.
2. A 501(c)(3) board of directors is required that all members attend at least one yearly meeting. There are no limits on meeting term lengths set by the IRS.
3. The board of a nonprofit may have to include officers, such as a secretary or treasurer. This advisory rule depends on the law of the state where the nonprofit is incorporated. For example, some states allow one person to hold numerous officer positions.

Generally, it is best to have a 501(c)(3) organization with at least 51% of unrelated board members. These requirements have to be taken into consideration when appointing board members.

What is considered to be a conflict of interest?

A conflict of interest is defined as an inconsistency between private interests and the official responsibilities of a person in a position of trust. A conflict of interest arises when a reasonably informed associate within a nonprofit has the appearance of personal or even professional gain. The eyes of the law judge a person involved who, on behalf of a nonprofit, promotes their personal interests most evidently. 

By design, a nonprofit is a business that has been granted tax-exempt status because it benefits a social cause for the public good to some degree.

Types of Conflict of Interest

Family members & Personal Relationships

When applying for a job at a nonprofit, hiring family members can be viewed as getting special treatment. Family members involved with nonprofits have the potential to cause a conflict of interest. 

Beyond family, personal relationships among nonprofit board members also create a conflict of interest. If board members have a personal relationship, they may receive preferential treatment, which may lead to special favors like salary increases.

An example in hiring is when you give special treatment in a nonprofit or any workplace to a family member. This is a classic example of family preference in addition to extra money or perks for relatives.

For-profit interests

Nonprofit board member should not bring their outside financial interests into their nonprofit organization. Using the nonprofit to benefit their personal investments would create a conflict of interest.

One example is if you use the nonprofit's resources to benefit your personal business or investments. Another instance of a personal conflict of interest is using a nonprofit without disclosing the relationship you have with an outside company that has a competing or similar mission to the nonprofit. This could be the case if a board member also serves as the CEO of a company within a similar industry.

Disadvantages of having family members on your board

Having family members in your nonprofit — especially on your board — can be problematic. As the governing body of a nonprofit, the board of directors makes all the major decisions.

For example, if a nonprofit only has three or four people on the board, all decisions may be greatly affected if the majority of the board members are related. When family members are involved, they may be more concerned with their benefit instead of the public good. Nonprofits and charities are created for the benefit of the public, not for the gain of family members and close friends.

In the past, the IRS has deemed any nonprofit with more than 49% of their board as setting off red flags and conflicts of interest. If this is the case with your nonprofit, the IRS may ask that you provide proof of your legal status as a nonprofit. You’ll need to show them that at least 51% of your board members are unrelated. The IRS is extremely concerned and attentive to your nonprofit board background. 

Conclusion

It’s wise to be careful about conflict of interest within a nonprofit. While it’s okay to have family members involved in your nonprofit and on a nonprofit board, you should be open about the relationships of all employees and board members.All nonprofits should establish family participation clauses to protect against conflict of interest and prevent members from resigning because of family or relationship preferences and ties.

Overall, nonprofits need clear guidelines to avoid conflicts of interest. A family that starts a nonprofit has to be open and transparent. Legally, at least 51% of board members should not be related. Nonprofit board members should meet periodically, at least once a year, to discuss and vote on the affairs of the organization and ensure there are no conflicts of interest.

Minimum Board members for all states:

*Those requirements were last checked on July 2022

Other Requirements

When it comes to nonprofits, there are many requirements in place. We advise getting professional advice as early as possible.

Just because an organization is founded as a nonprofit doesn’t mean it can’t make money.

So, can the founder of a nonprofit receive a salary? What about employees? Can a nonprofit earn an income? If you’re considering starting a nonprofit or have already made moves to make it happen, then it’s essential to answer these questions. Learn everything you need to know below.

What Happens If a Non-Profit Makes a Profit? 

If nonprofits can make money, you might wonder what gives them the distinction of ‘nonprofit’ to begin with. It can be a bit confusing, but the main difference between for-profit and nonprofit organization is the intent behind the business. A for-profit organization is founded with the intention of making a profit, whereas a nonprofit organization gets created to help others by providing a service or product. Making a profit or income is just simply a bonus.

Nonprofits do not seek to make a profit, but they often do.

Founders and owners of a nonprofit organization can work towards increasing their nonprofit’s income, but they can’t legally take part of that profit. Nonprofit organizations do not have owners or shareholders, so a nonprofit founder cannot become a shareholder or hold a stake in the company. Any income the nonprofit receives should be reinvested into the business to help fund future programs and activities.

Reinvestment can legally mean paying employees, agents, directors, and other individuals who volunteered or shared resources with the nonprofit, but nonprofits cannot distribute dividends to shareholders as for-profit organizations do. 

Overpaying is Prohibited

There is one important caveat to this general rule, though. In the Inurement Section of the Internal Revenue Code, there is a stipulation about nonprofit payments. In the section, it outlines that payments can’t be excessive. Moreover, no one individual within the nonprofit organization can benefit from the organization’s net worth.

Overpayments are not likely to slip by the IRS, either. The IRS will regularly audit a nonprofit’s employees’ and founders’ salaries to scan for potential overpayments. If an organization is caught overpaying an individual or multiple individuals, then it could lose its 501(c) status. This status is critical because it helps a nonprofit remain tax exempt. If this status gets revoked, the nonprofit must start paying taxes.

How to Determine a Reasonable Salary

So, excessive payments are prohibited, but employees, directors, and others can receive a reasonable salary. There is not much exact guidance as to what constitutes a reasonable salary, though, other than what “would ordinarily be paid for like services by like enterprises under like circumstances.” The IRS provides more details here and on Form 990.

Many nonprofit organizations operate with the help of volunteers who do not receive any payment for their work. Some agents, like outside vendors, maintenance workers, or other types of help, might expect to get paid, though.

What’s more, your organization might need consistent help with tasks like bookkeeping or advertising. Here are a few factors to consider when determining what type of salary is reasonable:

Scope of Work

The first thing you’ll need to consider when determining what salary is reasonable for an employee is the scope of work they’re expected to perform. Will the individual be doing budgeting tasks? Will they be putting in hard labor to build a shed? The scope of work will make a big difference in the expected pay of each position.

Hours Worked

The number of hours worked by each employee makes a difference in how much they should be paid. It makes sense that more pay will go to individuals who work more hours.

Expertise Required for the Job

Another important consideration is the expertise required for the job or service performed. If you’ll need to hire a professional or expert for a specific purpose, then it’s expected that you’ll have to pay them higher than average fees. Compensation will be higher in these situations, and that’s perfectly reasonable. If the job doesn’t require a certain level of expertise, it might be better to hire someone more cost-effective. You can look up salary data for many positions at the Bureau of Labor Statistics to ensure you’re not overpaying your nonprofit employees. 

The Nonprofit Organization’s Budget

One of the top things you’ll need to consider when determining reasonable salaries for employees is the entire budget of your nonprofit organization. This complete overview will help you determine what’s reasonable. Salaries shouldn’t make up more than a third of your budget.

Independent Contractor or Employee?

Despite your nonprofit organization being tax exempt, you might still be liable for withholding taxes if you hire employees. It’s crucial to identify whether the individuals you hire to perform work would be legally classified as employees, independent contractors, or volunteers for this reason.

If the person is a paid employee, you’ll need to withhold Social Security, Medicare, unemployment, and income taxes for the individual. If the person is considered an independent contractor, you will not be required to withhold taxes for their pay. Of course, you won’t be paying anything to a volunteer, so you also won’t need to withhold taxes for them.

Should I Pay Myself a Salary as a Nonprofit Founder?

Now that you know that you can pay yourself as the founder of a nonprofit depending on the scope and nature of your work, you might be asking – should I? The answer to that question hinges on your personal preferences and the amount of work and time you invest in the nonprofit. You’d never want to take advantage of the situation and overpay yourself, but you also don’t want to undercut yourself if you’re sacrificing a ton of your time and money to the organization.

If you do pay yourself, then it’s important to remember that you do not own the nonprofit’s earnings.

Things to Keep in Mind

Salaries need to be budgeted

One important thing to consider is to include your regular salaries in your nonprofit budget. Making these expenses consistent, well-known, and apparent will help normalize them in the event of a future audit. Not only that, but it will also help you plan out your entire organization’s budget. Only a portion of your nonprofit’s income should go towards payroll expenses. Much more of it should be going towards your organization’s philanthropic goals.

Raised money can be restricted

Another consideration is that raised money could be restricted for specific purposes. For instance, if you throw an event to raise money for a cause, it would be inappropriate to allocate most of those earnings towards paying yourself and your employees. Always make sure to consider your budget beforehand and make it clear what percentage will go to charity.

Keep reputation in mind

Further, your reputation as a nonprofit organization matters. Your finances will be up to more public scrutiny than a for-profit business. The public might question your motives if you’re not allocating a huge chunk of your income towards your philanthropic goals. That’s not a good look for your brand!

Can the Founder of a Nonprofit Receive a Salary?

So, can the founder of a nonprofit receive a salary? That’s a complicated question because founders are not meant to take any part of a nonprofit’s income, and they can’t become shareholders. They can, however, receive a salary in other ways.

Per IRS law, it’s legal for nonprofit organizations to pay significant wages to employees, agents, and directors. The founder of a nonprofit is legally able to work any position within the organization and receive the allocated wages for that position. So, in a nutshell, the founder of a nonprofit can receive a salary, so long as it isn’t excessive.