How to start a nonprofit organization

How to start a nonprofit organization

First of all, why would anyone want to form a non-profit corporation in the first place? If you register your corporation as a non-profit (in other words, a 501(c)(3)), and high salaries that you may distribute will be looked at very closely. Most people consider it to be scandalous when an employee or even the director of a nonprofit organization makes more money than the average donor.

Most likely, you are not going to get rich by becoming a non-profit corporation. You can, however, tap into numerous sources of funding as a non-profit corporation that would otherwise be unavailable to you. Non-profits qualify for tax exemptions, can give donors the incentive of being able to write off donations to the organization, and perhaps most importantly, make the business eligible for grant funds from the government and private foundations.

Forming a non-profit corporation does require some extra footwork.

You will need to see if your organization meets the qualifications before you proceed. According to the Internal Revenue Code, a non-profit must operate for religious, educational, literary, charitable, or scientific purposes. If you believe that your business qualifies and that a non-profit corporation in the course of action that you wish to take, you will need to follow these steps:

Decide on a board of directors. Non-profits typically must have a board of directors consisting of at least three individuals who are dedicated to promoting and raising funds for the corporation. This board will develop the corporate bylaws and organizational statement of purpose. You will want to select individuals who share your vision for the organization, who are trustworthy, and who are willing to devote time to the organization.

You will need to decide upon a name, and check to make sure that the name is available, just as you would with any other business. If your non-profit will cover an area that is larger than your state, you should do a nationwide search. Once you find the name that you want, be sure to reserve it.

You will need to develop your charter document, the Articles of Incorporation. Using a standard form provided by your Secretary of State, you can fill out your Articles of Incorporation. You may also choose to customize them. If you are forming a fairly straightforward non-profit without special provisions, developing your Articles of Incorporation should not be difficult.

The information that you will need to provide is the name of your corporation, the name, and address of the agent and office of the corporation, the purpose of the corporation, the names and addresses of the members of the board of directors, and the period of duration of the corporation. The IRS will also want a confirmed copy of these articles when you are applying for your tax-exempt status.

After you have decided upon and reserved your corporate name, and set up a board of directors, file your Articles of Incorporation with your Secretary of State. The costs for filing vary from state to state but can be $200 or more. By the time you have finished filing all of the documents necessary for your non-profit, you will most likely have spent in excess of $500, and more if you’d like expedited service. The Office of the Secretary of State is not known for its speedy processing of documents, and it may take up to six months before your non-profit application is approved.

With the board of directors, develop a statement of purpose and bylaws for your organization. Bylaws basically state when meetings will be held, how often, what sort of notice will be given, how long the term of office for the board of directors will be and so on. They help ensure that your organization will run smoothly.

File the federal tax exemption application. This is another form that is best filed as soon as possible, as it will take time to be processed. When you are preparing and filing forms, it is very important to do it correctly the first time. You do not want to receive a letter three months from the date you filed informing you that you did it incorrectly and have to resubmit the form. This can delay your organization from receiving its non-profit status for another few months, which can be a costly error.

Check with your Secretary of State and the IRS to see if there are any other forms that you need to fill out and file. Requirements change on a regular basis, and you will want to have the most up-to-date information.

Unless you are a professional accountant, find a good one. Perhaps you can ask an accountant to be on your board of directors. One of the downsides to having a non-profit corporation is the extra financial accountability that you will be responsible for. It is good to have professional advice in this area so that you don’t inadvertently violate an IRS tax law and risk losing your non-profit status.

There are many decisions that you will need to make in the process of forming your non-profit organization. You will need to decide if you want to have members, how you will raise funds for the functioning of the organization, how you will promote your organization, and who will be on your board of directors. It is not a decision that should be taken lightly, as you will soon see when your Secretary of State and the IRS provide you with the complete list of documents and forms that you will need to file!

However, if your cause is a good one, you will have the satisfaction of knowing that all of your efforts are worth it, and may find that you will experience a great deal of success. Remember, the American Red Cross is a non-profit organization, and you never know how far your efforts may take your organization, and how extensive its benefits to others may prove to be.

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