Every nonprofit goes through some type of change in its life cycle. In this article, we’ll explore some of the most common examples of changes I see as a nonprofit attorney, as well as what can be done legally to reflect those changes in your corporate documents. As usual, I’ll be including some tips throughout so you can make the transition as straightforward as possible for your staff and those who support your organization.
Changing Your Name
It’s often comforting for new nonprofits to know they don’t have to stick with the same name they started with, especially as their organization expands to meet more needs or narrows their focus to a more specific purpose. And it’s also not uncommon for more established nonprofits to change their name after a rebrand or a change in focus.
Regardless of the reason, once your board agrees to no longer go by its current name, you’ll want to make a game plan for each place that name needs updated—not only on your buildings, brochures and website, but in your legal documents too.
First, it’s easiest to start at the state level by filing Articles of Amendment to make the new name official. Some states have specific forms for name changes only, so you’ll want to check on this.
Once you’ve updated your name on the state level, if you’re a 501c3 organization, you’ll want to make sure the IRS knows you now go by another name. You can accomplish this in a few ways:
- You can have the IRS recognize your name change when you file your next 990.
- You can fax them a name change request so they recognize the name change.
A step that is not required but can be helpful is obtaining an affirmation letter from the IRS (which is essentially a new determination letter that reflects your new name). This can be helpful when you must provide this documentation to a grantmaking foundation or a corporate partner and you want the new name listed. Even though the affirmation letter may take a long time to arrive, many organizations find it worth having to avoid confusion with funders. You can also have an officer from your organization call the IRS and ask them for the affirmation letter once they’ve recognized the name change, which can be faster (if you can get past their long hold times!)
DBAs (Doing Business As)
Some organizations operate under a DBA, known in many states as “Doing Business As” (though some states might call it a fictitious business name, trade name, or assumed business name). DBAs are most commonly used in connection with a specific program.
For example, a nonprofit that serves underprivileged communities with financial literacy classes might have a name that acts as an “umbrella” for all of its programs. We’ll call this organization “The Citywide Smart Spending Foundation.” But maybe it also has a popular program aimed specifically for school age children, “SpendSmart,” and that program has grown big enough to be recognized by its own name.
This would be a great example of a nonprofit that could benefit from a DBA. More of a marketing consideration than a legal one, having a DBA would mean your organization is recognizable by both names. Donors could make checks out to either the main organization’s name or the program’s name, or both can show up in an Internet search.
You’ll want to take these factors into consideration when deciding to register a DBA:
- If you only plan on using your DBA moving forward, it’s best to change your name altogether to be officially updated on paperwork and marketing materials. Your paper trails will be less confusing, especially on your public records.
- Check your state-specific requirements surrounding registering DBAs. You may need to register your DBA in multiple states if you plan to use it outside of your own, including if your nonprofit has virtual programs that serve people in multiple states.
- You’ll want to make sure those registrations are up to date when entering into legal contracts using your DBA. When in doubt, your legal name is typically the best way to go.
Changing my Directors or Board Members
When directors leave their roles at your nonprofit, what happens next? It depends on the situation.
When directors complete their terms and roll off naturally, you can reflect this update by filing with your state. Some states may have specific forms about directors, and some may only have Articles of Amendment.
Alternatively, you can wait until you file your business entity report, statement of information, annual report, etc. with your state and update the list of directors at that time. In this circumstance, the timeline by which you make this change is not urgent, but it can be helpful to have your documents up-to-date.
However, what if you need to remove a board member due to something more alarming, such as causing harm to the organization or committing a crime? These unfortunate cases are often when you’ll want to make these changes more quickly to avoid any messy miscommunications. In either case, you do not need to notify the IRS every time a board member is no longer serving in their role, but you should update the list of directors when you file your Form 990s, if applicable.
Moving Your Nonprofit
Maybe you founded a locally-focused nonprofit but your family is moving states and you’d like to base your work out of your new neighborhood. Maybe your mission has been fulfilled in your current state and you’d like to bring your services to a new community in another state. Here are two methods to move your nonprofit across state lines legally, while ensuring you keep your 501c3 status and your EIN:
- Your first option is to reincorporate in the new state and dissolve your entity in the previous one. This will mean that your previous entity will no longer legally exist and will require you to follow the dissolution procedures in your state, which can be complicated and involved.
- Your second option is to domesticate into the new state and/or out of your previous state, if the state(s) allow for this process. This process can be complicated by various state laws and involves a series of filings in each state. This option leaves the biggest paper trail so people can see you did not shut down, you simply relocated. This can also be useful for funders, as some funders only want to give to established organizations, and closing down and creating a new entity can make your nonprofit look less experienced.
One of the biggest determinants of which method to use is whether the states allow for the domestication arrangement. Since not all states allow for this to occur (or, one does and the other does not), the choice may be made for you depending on where you are and where you are going. Consulting with a nonprofit attorney can be a helpful way to cut through the noise and come to the most straightforward conclusion.
In either case, the IRS will need to be notified that you’ve moved. You can do this on your next 990 form or more proactively through Form 8822-B.
And once your move is complete, don’t forget to check on your Charitable Solicitation Registration requirements! You can learn more here about state-level requirements for soliciting donations.
For many charities, there comes a time where significant change is necessary. Maybe your nonprofit is ready to expand program lines or link arms with another organization doing similar work. Maybe your nonprofit has fulfilled what it set out to do, and you’d like to tie up loose ends before closing it down. No matter what stage your nonprofit is in, we’re here to be the ally in your corner.
We’ve compiled these free resources for nonprofit leaders who are approaching one of these avenues for significant organizational change: mergers, reorganizations and closures.
Many people familiar with corporate mergers have a negative association with the word, but in the nonprofit space, a merger can be an excellent next step for an organization’s growth. For example, expanding nonprofits who want to shrink administrative costs may consider a merger with a similar organization who may have more established resources. This free resource explores some situations where a merger may be right for you.
In terms of reorganization, sometimes nonprofit leaders have different interpretations of the word. Some actually mean “restructuring,” which is more of an internal change in the way things are operated, like adding or subtracting a program. Some truly mean reorganizing, which is a more formal process involving a neutral third party and a court. This free article discusses the differences and 3 ways to reorganize or restructure your nonprofit.
Lastly, you may be at a point where your nonprofit needs to close. You can learn more here about signs it’s time to close your nonprofit, and learn more about five methods for how you can do so here.
But remember: each scenario is unique and can benefit from having a trained nonprofit attorney to help.
No matter what type of change your nonprofit is experiencing, we’re here to help as the ally in your corner. Request a consultation with us if you’re seeking assistance with any of these concerns.
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