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How to Start A Nonprofit Organization

How to Start A Nonprofit Organization

Starting a nonprofit organization is a noble pursuit that requires a lot of dedication, hard work, and planning. Nonprofits exist to address a particular need or cause, and they operate on a not-for-profit basis. If you’re considering starting a nonprofit organization, here are some steps to guide you through the process.

1. Identify the Cause You Want to Support

The first step in starting a nonprofit organization is to identify the cause you want to support. It’s essential to choose a cause that you’re passionate about and one that you believe can make a significant impact on the community. You can research existing nonprofit organizations in your community to identify which need is not being addressed or which area needs more support.

2. Develop a Mission Statement

Once you’ve identified your cause, you need to develop a mission statement. Your mission statement should define your nonprofit’s purpose, core values, and the impact you want to make. It should also be clear, concise, and easy to communicate.

3. Create a Business Plan

A business plan is a document that outlines the goals, strategies, and resources needed to achieve the mission of the nonprofit organization. The plan should include your mission statement, a detailed description of your cause, the target audience, organizational structure, staffing needs, fundraising strategies, budget, and operational plan.

4. Incorporate Your Nonprofit

Incorporating your nonprofit is a legal requirement that protects you and your board of directors from personal liability. You’ll need to register your organization with the state where you plan to operate. Requirements vary by state, but you can find information on the specific procedures and documents required online or by contacting the Secretary of State’s office.

5. Apply for Tax-Exempt Status

To qualify as a nonprofit organization, you’ll need to apply for tax-exempt status with the Internal Revenue Service (IRS). This process can take several months, and you’ll need to provide documentation, including your mission statement, proof of incorporation, and financial data.

6. Establish a Board of Directors

A board of directors is a group of people who oversee the organizational strategy and operations of a nonprofit organization. Your board should consist of individuals with diverse backgrounds, skills, and experience who share your passion for the cause. They should be willing to commit time, energy, and resources to the organization.

7. Promote Your Nonprofit

Promoting your nonprofit organization is essential to your success. You need to develop a marketing plan that includes social media, website, public relations, and other outreach activities. You should also partner with other organizations in your community that share your mission to increase your impact.

In conclusion, starting a nonprofit organization is a big undertaking, but it can be rewarding when you see the impact your organization is making in the community. With dedication, hard work, and planning, you can create a successful nonprofit organization that supports the cause you’re passionate about.

There are many laws and regulations related to starting a nonprofit organization, and for good reason.  If individuals are to trust you with their charitable donations, you will need to meet requirements for spending the donated assets, reporting on how these assets are allocated as well as deal with taxation and other federal regulations on non-profits.  It is strongly advisable you seek the services of a non-profit attorney when trying to starting a nonprofit organization.  They will be able to inform you on the relevant laws and regulations on non-profits, which will foresee and protect you against potential penalties and lawbreaking.

What are the elements for a non-profit organization?

Clearly, when starting a nonprofit organization, you will need a purpose.  The better defined the purpose, the easier the process of starting a nonprofit organization will be.  Clearly defining the purpose, such as “reducing infant mortality rates in Sub-Saharan Africa” will help you determine important factors such as overhead, assets that will be devoted to that cause, and the means by which your non-profit organization will operate and contribute to the cause.

Next you will need to formulate the articles of incorporation.  What needs to be in this document will depend on the state that the organization is based.  Usually this document will contain the structure and purpose of the organization as well as key information.  This, along with an application to your state’s Secretary of State are critical for starting a nonprofit organization.  There will be a fee to file your nonprofit corporation with the state.

After the legal structure of the nonprofit is taken care of, the next step in starting a nonprofit organization is to generate bylaws that govern the operations of the organization, including decision-making and governing.  This is important to defining roles in your organization which is essential for effective operation.

If necessary, you will need to set up payroll, like a typical employer.  You will need to contact the IRS for this step, or have your nonprofit attorney handle the process for you.

After this is all set up, you will be able to file for grants, have events and raise funds for the cause the charity or foundation is devoted to dealing with.

What is the difference between a private foundation and a charity?

This is a question you will struggle with when starting a nonprofit organization.  The difference between these two organizations is simple.  A private foundation, as defined by the Internal Revenue Service, is a nonprofit organization that derives its primary income (usually a third) from a few individual donations.  Individuals may donate only 30% of their gross adjusted income to this organization.  Public charities on the other hand, derive their income from many donations and any individual may donate up to half of their gross adjusted income to a public charity.  Generally you will want your nonprofit to be a public charity to maximize donations, but you can also choose to keep your nonprofit as an uncomplicated private foundation with a handful of benefactors.

The classification between a charity and private foundation is at the discretion of the IRS, but a non-profits attorney can assist you in determining the likely classification and how you can remodel the structure of your non-profit organization accordingly to best suit your needs.  This is one of many areas where good legal counsel is essential for starting a nonprofit organization.

What is the 501(c)(3) Designation?

The 501(c) designation is an IRS tax code designation for a non-profit organization that receives some exemption from federal taxation.  Here is another instance where the non-profit attorney will be able to help you, by obtaining this designation on your behalf.  State taxation generally follows the same criteria as the federal government for tax exemption.  This designation appears in Title 26, Subtitle A Chapter 1, Subchapter F, Section 501 of the Internal Revenue Code.  Any corporation, fund or foundation organized exclusively for religious, charitable, scientific, public safety, literary or educational purposes, amateur sports or prevention of cruelty to children and animals is exempt from taxation so long as no individual or shareholder derives a personal profit from the operation of the organization.

Fraternal organizations and retirement funds may also be tax exempt if they are for the sole benefit of the dependants. These organization are covered in 501(c)(8 – 12).  Several other narrow classifications exist for retirement and benefit trusts.

Most organizations seeking tax empty status must fill out IRS Form 1023.  There are filing fees of $875 for organizations grossing $10,000 or more.  The fee is reduced to $400 if the organization grosses less than the $10,000 threshold.  Houses of worship and organizations receive automatic exemption without filing Form 1023 but may still need to report assets to the IRS.

What are the limits on the 501(c)(3) designation?

Be aware that with your 501c3 designation, obtained by start a nonprofit organization, there will be limits on what your organization can and cannot do.

If you are a public charity, you may not generate personal profit or any other benefit for individuals, shareholders.  There will be limits on political activities as well.  Non-partisan voter registration and voting drives are allowed for public non-profits.  Engaging in political campaigns, including endorsing candidates or influencing legislation is prohibited, but large nonprofits may expend up to a million dollars to lobby for legislation but they must also declare this to the IRS.

Due to these limitations, especially on political activities, you may find yourself better suited to start a nonprofit organization such as a private foundation.  Private foundations will however be subject to more restrictions and less preferential tax benefits.  Private donations will not necessarily have to solicit donations from the public and will rely on the support of benefactors.

What are the responsibilities of a nonprofit organization?

All nonprofits must maintain records of finances for public inspection and allow for taxation on unrelated business income.  Reporting of assets to the IRS is accomplished through Form 990 (Return of Organization Exempt from Income Tax).  Form 990 is required for all nonprofits with at least $500,000 in total assets and failure to file this form will result in loss of tax-exempt status.