• Charities are governed by a mix of state and federal laws.Legal Law Justice image by Stacey Alexander from Fotolia.com
  
  Starting a charity exposes one to a potential minefield of complex laws in two broad categories: state law and federal law. Taking the time to learn how these rules work together, and what different purposes they serve is time well spent because it helps the organization get off to a good start. Hiring an attorney to handle formation filings is no substitute for this understanding. In the long run, founders of charities make better decisions and are better board members if they know what rules apply.
  
  

State Law

• Starting a nonprofit begins with a trip to your state's Secretary of State website. At a minimum, state law requires a charity to have a board of directors, bylaws and Articles of Incorporation before incorporating as a nonprofit entity.
  
  Regardless of the charity's located, all states require the organization file Articles of Incorporation with the Secretary of State. These filings are very economical for nonprofits. For example, in California, it is 300 percent cheaper for a charity to incorporate than a regular commercial entity. The Secretary of State's website often provides sample documents that are helpful when drafting bylaws and Articles.
  
  Every so often the organization will have to file a Statement of Information. This is a simple one page document that informs the state that the organization continues to exist. The rules vary slightly from state to state as to filing requirements. In California, the Statement of Information is filed every two years, along with a $25 fee.
  
  

Federal Tax Law

• After filing the Articles of Incorporation with the Secretary of State, it is time to apply for nonprofit status with the IRS. This is done by filing a Form 1023. Although the most common nonprofits are 501(c)(3)s, variations exist for different types of nonprofits. For examples, political nonprofits are governed by code section 501(c)(4). There are different tax consequences for donors, so it is important to be aware of these differences.
  
  

State Sales Tax Law

• In addition to the IRS rules, the charity also has to obey rules pertaining to state sales taxes. These rules can be found by turning to the website for the state's revenue department. State sales tax will be very important if the charity sells items as a fundraiser.
  
  

Trademark Law

• Starting a charity often involves getting the services of a graphic artist to design a particular trademark associated with the organization. If the organization registers the trademark with the U.S. Patent and Trademark Office, the trademark will be protected by federal trademark laws.