How To Start A Nonprofit In Hawaii: A Complete Guide

Starting a nonprofit in Hawaii can be a rewarding way to give back to your community and make a real impact. However, the process involves important legal steps to ensure your organization is set up correctly.

If you’re short on time, here’s a quick answer: to start a nonprofit in Hawaii, you need to choose a structure and name, file articles of incorporation with the state, create bylaws, obtain an EIN from the IRS, file for tax exemption status, register to fundraise in Hawaii, and maintain compliance by filing annual reports.

In this comprehensive guide, we’ll walk through each step of starting a nonprofit in detail, including choosing the right business structure, handling paperwork and filings, understanding tax implications, building a board of directors, and more.

Choose a Business Structure

Nonprofit Corporation

Forming a nonprofit corporation is the most common and beneficial structure for starting a nonprofit in Hawaii. Nonprofit corporations have legal protections that unincorporated associations lack, such as limited liability and eligibility for tax exemptions. Here are some key things to know:

• You must file articles of incorporation with the Hawaii Department of Commerce and Consumer Affairs.
• Nonprofit corporations are exempt from paying federal income tax if they meet IRS requirements for tax-exempt status.
• Directors and officers have limited personal liability for debts and legal issues.
• You must adopt bylaws and have a board of directors to oversee operations.

According to a 2022 study, over 80% of nonprofits in Hawaii are set up as nonprofit corporations. This structure lends credibility with funders and donors. The process may involve more paperwork initially, but provides long-term stability and options for growth.

Unincorporated Association

Some nonprofits, especially smaller community groups or clubs, start out as unincorporated associations. This structure is quicker and easier to set up, but lacks many legal protections.

• No formal paperwork is required – you can just start operating and organizing members.
• Members and leaders are personally liable for any legal issues or debts.
• Harder to open organizational bank accounts or enter contracts in the group’s name.
• More difficulty qualifying for nonprofit tax exemptions and funding opportunities.

While simpler initially, being an unincorporated nonprofit association can create problems down the road. Many groups end up incorporating as nonprofit corporations after a year or two. But this route may work for small or informal groups just getting started.

File Articles of Incorporation

One of the key steps to forming a nonprofit corporation in Hawaii is to file Articles of Incorporation with the state. Here’s what you need to know about this important process:

Purpose of Articles of Incorporation

Articles of Incorporation (sometimes called a Certificate of Incorporation) are the legal document that establishes your nonprofit as a corporation under state law. They contain key details about your organization such as:

• The official name of the corporation
• Your nonprofit’s purpose
• The name and address of your registered agent
• The names and addresses of the initial board of directors

Filing these articles with the Hawaii Department of Commerce and Consumer Affairs creates your nonprofit as a legal entity separate from its members.

Requirements for Articles Content

Under Hawaii’s nonprofit corporation laws, your Articles of Incorporation must contain:

• The exact name of the corporation
• A statement that it is a nonprofit corporation
• The purpose(s) of the nonprofit
• The name and address of the initial registered agent
• The names and addresses of each incorporator (person filing the articles)

You’ll also need to include provisions about the distribution of assets upon dissolution. Overall, Hawaii doesn’t have extensive or unusual nonprofit incorporation requirements compared to other states.

Filing Articles of Incorporation

To file your nonprofit’s Articles of Incorporation in Hawaii, you must:

1. Prepare articles that meet state requirements
2. Pay a $100 filing fee to the Department of Commerce and Consumer Affairs
3. Submit the articles by mail or in person to the department

The department will then review and approve appropriately prepared articles. Processing time is typically under 10 business days. Once approved, you’ll receive a Certificate of Incorporation authorizing you to operate as a Hawaii nonprofit corporation.

Filing these organizing documents is an important milestone in legally creating your tax-exempt organization!

Draft Bylaws

Board of Directors

The board of directors is the governing body for a nonprofit organization. Bylaws should outline the makeup of the board, including the number of directors, election process, terms of office, and removal process. Here are some key points to cover in the bylaws:

• Specify the number of board members or a range (e.g. 5-9 directors). More members bring more diverse perspectives, but too many can be unwieldy.
• Outline the process for electing/appointing new directors. Popular approaches include appointment by current board, nomination by a committee, or nomination by members/stakeholders.
• Set director terms, which often range from 1-3 years. Staggered terms provide continuity so the entire board does not turnover at once.
• Establish procedures for removing non-performing directors, addressing conflicts of interest, and filling unexpected board vacancies.

Clearly defining the composition and selection of the nonprofit’s board of directors in the bylaws is crucial for effective governance and leadership.

Membership Structure

As a nonprofit grows, establishing a membership base is important. The bylaws should describe the types and rights of members. Here are key considerations:

• Will the nonprofit have members at all? This is optional but can help broaden public support.
• Define membership eligibility – is it open to all interested parties or restricted based on location, affiliation, criteria, etc?
• Classify membership types if offering different levels, like individual, family, organization, etc. Outline related rights like voting power.
• Establish a process for accepting new members and removing those failing to meet requirements.
• Specify any membership dues – amounts and payment procedures.

Defining membership structure and rights allows nonprofits to build a network of engaged supporters and participants. According to a 2022 report, 57% of nonprofits have members.

Decision-Making Process

To function efficiently, nonprofits must establish decision-making protocols. The bylaws should detail procedures for votes by boards and members. Essential elements include:

• Quorum – the minimum number of members required for a valid vote.
• Notification – how and when members will be notified before votes.
• Voting methods – mail/email ballot, show of hands at a meeting, proxy voting, etc.
• Passing thresholds – majority, two-thirds, etc. needed to approve decisions.
• Allowances for remote participation if votes occur during meetings.

Clear decision-making rules allow nonprofit boards and members to efficiently make choices that advance the organization’s mission and strategy.

Obtain an EIN

An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States for the purposes of identification.

Obtaining an EIN is an important step when starting a nonprofit organization in Hawaii.

Here are the key things you need to know about getting an EIN for your nonprofit:

What is an EIN Used For?

An EIN serves several important purposes, including:

• Opening a bank account
• Applying for tax exemptions
• Reporting payroll taxes
• Filing annual tax returns

So in short, you need an EIN if you want your nonprofit to have a bank account, apply for tax exemptions, hire employees, and file taxes.

Who Needs to Get an EIN?

All nonprofit organizations need to get an EIN, including charities, private foundations, political organizations, social clubs, etc. So if you’re starting any kind of tax-exempt organization in Hawaii, applying for an EIN should be one of your first steps after forming your nonprofit.

How to Apply for an EIN

Applying for an EIN is a quick and straightforward process. You have a few options:

• Apply online at IRS.gov. You get your EIN immediately.
• Apply by fax or mail by submitting Form SS-4 to the IRS. Allow up to 2 weeks processing time.
• Apply by phone by contacting IRS Business & Specialty Tax Line at (800) 829-4933. You get your EIN immediately.

The online application is fastest and most popular. All you need is identifying information about your nonprofit, details about your organization, and the appropriate individuals to speak with the IRS if needed.

Using your EIN

Once you have your EIN, be sure to keep it in a safe place. Include it on any bank accounts, tax documents, and license applications related to your nonprofit’s operations. Getting an EIN opens many doors for your organization and is crucial for effective compliance and reporting.

With a bit of preparation, obtaining an employer identification number for your Hawaii nonprofit can be simple. Just follow the step-by-step application guidelines laid out by the IRS.

File for Tax Exemption Status

501(c)(3) Tax Exemption

One of the most important steps in starting a nonprofit in Hawaii is obtaining 501(c)(3) tax exemption status from the IRS. This allows your organization to operate tax-free, and allows donors to deduct their contributions on their taxes.

To qualify, your nonprofit must be formed to benefit the public good and have an exempt purpose like charitable, religious, educational, scientific, or literary. Most nonprofits file for 501(c)(3) status.

The 501(c)(3) application process involves:

• Drafting articles of incorporation and bylaws
• Filing with Hawaii’s Department of Commerce
• Preparing IRS Form 1023 with details about your nonprofit’s purpose, activities, finances, and governance
• Paying the filing fee ($600 for small organizations)
• Waiting 3-12 months for the IRS to approve or request more information

This can be complicated, but getting 501(c)(3) status unlocks critical benefits, so it’s worth consulting an attorney or using an online service like LegalZoom for help.

Other Tax Exempt Categories

Besides 501(c)(3), there are 28 different 501(c) tax exemption categories. Some other common options for Hawaii nonprofits include:

The main difference is 501(c)(3) groups can offer tax deductibility to donors, while donations to other 501(c) nonprofits don’t qualify. Still, obtaining federal tax-exempt status is beneficial for fundraising, credibility, state tax exemptions, discounted postal rates, and more.

Hawaii nonprofits like homeowner associations and credit unions may alternatively qualify for state tax exempt status only under Hawaii tax provision 235-9.5. However, public charities are still better off applying for IRS recognition.

Conclusion

Starting a nonprofit in Hawaii involves important legal, financial, and organizational considerations, but the reward is the ability to drive meaningful impact through your mission-driven work. By following the steps outlined here and working with professionals like lawyers and accountants, you can ensure your nonprofit is set up for success as you work to serve your community.

Sharing is caring!