So you want to know how to make non profit organization? In my career I have met hundreds of nonprofit founders. They are kind, caring and passionate. The work they do brings joy, fulfillment, financial security, safety and happiness to the lives of those they serve and these founders know the work they are doing makes a real difference every day. I am honored to be asked to help them realize their passion – and I can guide and support in the process!
But what are the steps to making a non profit organization to help improve your community? Well, I have already mentioned the first step. It takes Passion. Passion for your cause allows you to keep with the hours of unpaid work needed to get your nonprofit started.
A nonprofit corporation is a business. It is a type of business entity. Although the service and the funding of a nonprofit is different from a for profit, the IRS and your State laws identify legal concepts that must be followed by every nonprofit. Understanding how this ties into your idea and/or organization is important in the creation of your nonprofit.
In addition to specific concepts to understand, there are specific steps to take when starting a nonprofit corporation. In this article we will discuss the steps. Please look for my other blogs on Articles of Incorporation five clauses, bylaws and policies for more information on some concepts to understand.
Steps for Starting a Nonprofit Organization
Name your nonprofit.
This is actually more important than you would think. There are millions of for profit and nonprofit companies throughout this country and millions more around the world. Besides the fact that you can not register the same name as another company with the same business type, you will also need to consider the marketing and branding of your nonprofit corporation. Your name needs to state in 1-5 words what you are, what you do,and/ or who you help. Of course you will have a tagline and your mission and vision statements, but your name is critical to your message. Research names of other like organizations on the internet and in the geographic community area you serve. Remember, it needs to avoid confusion by the public with any other organizations and your mission. It is not necessary to have “Inc., Nonprofit Corporation, 501c3” in the name when registering with the state.
Register your nonprofit name with your state’s Secretary of State.
Just like a for profit business, nonprofits must register their name and Articles of Incorporation with the Secretary of State. In every state, the state legislator has defined what a nonprofit corporation is and your Articles of Incorporation must include this information. The IRS has five clauses that make up a nonprofit corporation and these belong in your Articles of Incorporation. You also include the incorporators of the nonprofit. This could be just the founder, but often includes your board of directors.
Include the nonprofit address.
You also include the physical address of the nonprofit and I always recommend you have a PO BOX for the nonprofit. Remember, the nonprofit does not belong to the nonprofit. The nonprofit belongs to the community it serves and the Board of Directors governs the nonprofit. Multiple people need access to the mail, among other assets of the organization. So, find a PO BOX to have mail sent to and include in your state and IRS filings.
Obtain your nonprofit EIN.
The next step is to go to the IRS website and obtain your NONPROFIT EIN. This is usually an online form. When selecting the entity type it is very important that you read the options carefully to choose the nonprofit entity (hint: last selection and tax exempt entity). The name must match the address registered with the state. Oh, and you have to give your personal Social Security Number (SSN) when completing the registration.
Open the checking account
After you have obtained your Article of Incorporation filed with the state and your EIN you can open a checking account. As of the date you register with the state you can begin fundraising and the IRS expects you to do so. They expect you to be operating like a tax exempt nonprofit even before you get your tax exempt status (501c3, 501c4, 501c6, 501c7, etc.). Once you have the checking you can start paying expenses out of that account and taking in income. Additionally, not even the founder should be paying for expenses out of their own pocket. If you have not raised enough money to cover expenses and still need to donate your own money to the organization, write a check or deposit cash into the nonprofit checking account and pay the expenses from the nonprofit account, never your personal account. The IRS really doesn’t like when people do this.
Set up your board.
Every nonprofit corporation must have a volunteer board of directors made up of at least 3 people. They should not be related by family or have close business ties with a company they own that would benefit the individuals on the board. The board should be made up of people who are passionate about the organization, leaders who can appropriately share their thoughts and ideas, and interested in training and education to be the best board members possible. You don’t have to have attorneys or accountants on the board as financial and legal concepts can be learned, but you do have directors who will be respectful and understanding in their deliberations. They should understand the mission and vision of the organization when making all their decisions.
Create your bylaws.
The board of directors creates the bylaws. Bylaws are customized to each organization board. The board approves the mission and vision statements, decides when and how often to meet, how long they serve, the policies among other items. Of course the founder plays a role in this. The founder chooses the first directors for the board and shares the vision and mission of the organization.
Choose an Executive Director.
If the founder is not doing the day to day activities, which is unusual, then they can serve on the board. However, the person who does the day to day activities of the organization is the Executive Director and in the beginning, and in most new nonprofits, this is the founder. Yet, the board will always want to keep in mind who would be the Executive Director if something happened to the Founder. Often, the Founder will work many more hours for free, and usually start off without a salary for many years. But what if something happened to the founder? The board should plan for paying an Executive Director and other staff and conduct the fundraising to accomplish this goal.
Do the mission.
While you are setting up your checking account, building your board, and creating your bylaws, you are also doing the work of the mission of the nonprofit. Are you saving animals, helping the homeless, providing early childhood education, going to disaster sites around the world? Whatever your purpose is don’t wait to do the the work. One way to start is for the board to start with operations, programming and fundraising strategic planning and then implement at least 1 program and fundraising event. This helps to prove your services are needed in the community as you start to complete IRS From 1023 or 1024
File your Form 1023 or 1024.
Form1023 is for nonprofits seeking 501c3 tax exempt status. Form 1024 is for nearly all other tax exempt status’. Sounds easy, but this document is a critical part of the success of your organization. You are not only completing it for the IRS, but it will be read by foundations, donors, clients, and anyone interested in your nonprofit. Form 1023 must be completed within 27 months of your registration with the state while Form 1024 must be completed in 15 months. Good news! As long as you meet this deadline, the IRS backdates the tax exempt status to the date you registered your Articles of Incorporation with the state. I’m not going to discuss all the details of completing this form as it is a long process and should be taken very seriously. I will say that you should go through the strategic planning process before completing the form. The IRS has said that 40% of all applications are declined, 40% are approved with additional questions postponing the process by months and only 20% are approved with no questions. Just a note, 100% of my clients applications have been approved with only 10% having additional questions so you may want to consider having a professional help you complete this form and understand all the concepts laid out and made specific to your nonprofit.
Complete all IRS and State filings.
The IRS requires you file your 990 every year even if you make $0 and even before you get your tax exempt status. If you don’t file for 3 consecutive years, your tax exempt status will be revoked. The State requires you file annual and/or periodic reports to keep your Articles of Incorporation active and nearly all states require you file a Charitable Solicitations Register. You actually have to do this in every state you raise money. There are some exemptions to filing, but make sure you know the rules for each of these filings.