If you have ever wanted to start a nonprofit consider this your simple guide. We will discuss the nine easy to follow steps to get you on the road to serving others in your community and abroad.
Starting a nonprofit can be a rewarding experience. It is no wonder it is one of the most popular bucket list items, filed under “changing someone’s life for the better“.
Nonprofits have one goal in mind: to make a difference. If you have always dreamed about making a difference in someone’s life, follow these 9 steps to start a nonprofit.
1. Registering Your Nonprofit Name
You can’t just choose any name for your nonprofit. You have to actually check with your secretary of state’s office to see if the name you want is available. If so, you will have to register it with them.
The cost to register your name is usually $25 or so. Now, it is important to know that you are just reserving your name until you file your articles of incorporation.
Registering your name with the secretary of state’s office just ensures that no one else can take your name while you are in the filing process.
2. Appointing Your Board of Directors
Next comes appointing your board of directors. Now the reason why you have to do this before you file for tax-exempt status is for two reasons:
- You have to list their names and addresses when you file for incorporation and your tax-exempt forms
- Your board will help you create your bylaws which are also required for incorporation
It is important to note that board members cannot receive any compensation from the nonprofit for their service. You should also adopt a policy addressing conflicts of interest ahead of time just as a preventative measure.
The biggest reason why you need a nonprofit is to help you make decisions and manage finances, marketing, events, and more.
You should make sure your board members have experience in these areas. If you are not sure where to look for a board of directors, many nonprofits start with friends, coworkers, or even volunteers.
3. Creating Bylaws
Your bylaws are simply legal documents stating a formal agreement between the organization and the owners for two reasons:
- To determine how the business will be conducted
- To determine how decisions will be made
Bylaws will be created by you and the board members at your first board meeting. Generally speaking, your bylaws should include the following eight areas:
- Purpose – mission and services
- Public membership or no public membership
- Decide when your annual meeting will be conducted
- Calendar year or fiscal year which will include your nonprofit annual report
- Who is on your board of directors
- Conflicts of interest
- The official date your bylaws will come into effect
There are some sites that can help with creating your bylaws, so be sure to check online.
4. Filing Your Articles of Incorporation
You file your articles of incorporation with your state office. You will remember that this is the same place you that you registered your name with in step 1.
Each state may have slightly different requirements on what you must file so it really depends on where you are, but generally, most states will ask for the following:
- Your corporation’s name
- Your corporation’s address
- Name and address of your registered agent in the event of legal issues
- A statement of purpose
- Members vs non-members
- Type of nonprofit
- Names and addresses of your board of directors
- Name and address of the person or people incorporating the nonprofit
For most nonprofits, this is just a 501 C3, but depending on if you are a specific organization like a chamber of commerce or a fraternity. The cost to file your articles of incorporation is usually around $100. In some cases, it may be up to $250.
5. Obtaining an Employee Identification Number (EIN)
Before you can move on to apply for your tax-exempt status, you will need to obtain an employee identification number (EIN). This is a nine-digit number that the IRS will use whenever they interact with your nonprofit.
You may be asking, what if I don’t have any employees? You will still need a tax ID number.
They are pretty easy to get. You just apply for your EIN on the IRS website where you will answer a few questions about your nonprofit.
One important thing to note, when filling out your EIN questionnaire, you hall have to do it in a 15-minute time window so make sure you have time to fill out the form and questionnaire distraction-free.
6. Applying for Tax-Exempt Status With the IRS
You will need to fill out Form 1023 to be recognized as a tax-exempt organization with the IRS. There is also a form called 1023-EZ, which is a streamlined form that you may be eligible for to make it a little faster.
There is a charge for the forms:
- Form 1023 is $600
- Form 1023-EZ is $275
Form 1023 is up to 28 pages long and can take 100 hours to fill out, so it is not something you want to mess up. Some nonprofits will hire a consultant to help with this process. Otherwise, they will hire a lawyer to help them out to make sure the process is smooth.
Helpful tips to fill out Form 1023:
- State whether you are a corporation, an LLC, or an Unincorporated Association or trust
- Attach a copy of your bylaws and their date of adoption
- Copy of your past, present, and future plans as a nonprofit organization
- Include names and financial obligations for any officers, employees, or the like
- Attach copies of leases, loans, contracts, or any other agreements your organization has made with other third-parties
- Detailed information on any negotiations you’ve made so far
- Detail products and services you intend to create as well as any fundraising programs you have coordinate or plan to use
The IRS will require some financial information for Form 1023, such as:
- Three-year finances
- Taxes levied
- Disbursements to members
- Professional fees
- Other data
It is important that you start saving all of those receipts and invoices for everything from day one. Even if you don’t have finances on the organization now, it is important to start thinking about it.
The IRS will ask you to project revenues and expenses into the future. The IRS will ask you to project two-years of revenue. There are six main types of revenue the IRS will ask for:
- Gifts, grants, and other contributions
- Membership fees
- Investment income
- Taxes levied
- Admissions, merchandise sold, or services
- Other income
7. Ongoing Compliance
Depending on the type of nonprofit you are, you may have to attach additional forms to meet regulations. These types of nonprofits would be things like:
- Grants or scholarships
- and more
Once you have filled out these additional forms of compliance, you are done.
Start a Nonprofit: Change a Life
While it is not easy to start a nonprofit, it can be very rewarding. Once the initial steps discussed above are done, you can start the real work of changing lives for the better.
For more information about starting a nonprofit or learning more about being an entrepreneur, check out our blog for tips, tricks, news, and a whole lot more.