Step 3: Establish Your Museum
If you are planning to create a museum, you will need to understand the legal and tax obligations that come with establishing and running an organization. Most museums choose to establish as nonprofit 501(c)(3) organizations. If you are applying for nonprofit status, you must file for federal, state and local tax exemptions (steps C and D) after the organization is legally incorporated. However, forming a corporation generally includes these steps:
A. Filing articles of incorporation
This is a legal document filed with your state in order to create a corporation. In this step, you will have to decide on your museum’s name, broad purpose, and location. You must draft your articles of incorporation and file the document with your state’s government, which is usually the office of the Secretary of State or Attorney General. Many museums provide their articles of incorporation on their websites, so you can search the internet for “articles of incorporation + museum” to see samples. Keep in mind that the requirements and forms vary by state.
B. Obtaining an employer identification number (EIN)
In order to open bank accounts in the name of the organization, file forms with the IRS and withhold employee income tax once you hire staff, you will need a federal tax identification number, which is called an EIN. You can obtain this number by filing with the IRS.
C. File for tax-exempt status with the IRS
Organizations with 501(c)(3) tax status are exempt from federal taxes and contributions are deductible by donors for income tax purposes. Filing for tax-exempt status with the IRS can typically take 3-12 months. You may want to consider getting assistance from an attorney for these federal filings. The National Council of Nonprofits provides a list of forms and filing requirements to complete to apply for federal exemptions.
D. Filing for state and local exemptions
Once you receive tax-exempt status from the federal government, you may need to file separately for state and local tax exemptions. Keep in mind that laws and procedures can vary in each state. GrantSpace, a service of the Foundation Center, has compiled nonprofit startup resources organized by state, which includes start-up guides, nonprofit associations legal support organizations, technical assistance, and state filing agencies.
Committing to excellence
One of the first steps you can take after establishing your museum is to take the Pledge of Excellence. The Pledge is a free, easy and achievable way to show your museum’s commitment to being a good steward of the resources it holds in the public trust. Next, you can begin working on drafting the five Core Documents that are fundamental for basic professional museum operations and embody core museum values and practices.
Resources to Help You Establish Your Museum
- Instructions for Form 1023 (Application for Tax Exemption): The Internal Revenue Service (IRS) offers a companion Instruction booklet that explains the Application for Tax Exemption, also known as a Form 1023 (PDF). The IRS also has a handy checklist to help reduce common errors.
- How to Form a Nonprofit Corporation: A 50 State Guide: Legal resources website Nolo shares information on how to form a nonprofit corporation online. They provide a general overview of the advantages and disadvantages of nonprofit corporations and explain where nonprofits fit into the larger legal and corporate world. These resources outline the steps required in filing for nonprofit status: choosing a business name, filing articles of incorporation, applying for tax exemptions, creating bylaws, appointing the initial board of directors and obtaining any necessary licenses and permits.
- Tips for Starting a Nonprofit: This Nonprofit Law Blog post focuses on drafting a purpose statement. It is the second YouTube video from the NEO Law Group with 2-minute tips for starting a nonprofit.