Most not-for-profit corporations opt to incorporate under state law. This step is taken prior to seeking the very valued 501(c)3 status. Initially, drafting the certificate of incorporation can seem fairly easy and New York State offers examples to help guide people forming not-for-profits. Most of the information the creators need to provide are fairly self-explanatory and include things like the name and addresses of a minimum of three board members. Those who chose to draft these articles on their own should be aware of the importance the “purpose” section is, however.
The purpose clause is probably the trickiest part of the certificate. Although businesses in New York are allowed to use all encompassing language, allowing the business to participate in “all lawful activity,” not-for-profits must be more specific than this. Additionally, even if the state approves the purpose, when the not-for-profit goes to apply for its 501(c)3 status (which is granted by the IRS, not the state) the IRS will carefully review this purpose before ruling on the exemption request, so all purposes need to be drafted with the IRS standards in mind. The goal is to be as specific and as broad as possible in the purpose. The purpose clause should be drafted so as to avoid the need to amend it later should the not-for-profit wish to expand to a different kind of business, but not be so expansive that the not-for-profit needs to obtain a large number of consents from state agencies.
All in all, it is wise to carefully review your purpose clause on multiple levels before submitting it to the Department of State.
