Prior to incorporation, you should have a clear understanding of what your non-profit organization will be. After determining what societal need you are attempting to address, create a detailed outline of how that need will be addressed. The clearer and more developed your purpose becomes, the easier the next steps will be.
Pre-Incorporation Planning: The First Step in How to Start a Nonprofit Organization
Beyond developing a plan for your non-profit organization, it will be important to figure out a fundraising plan. An organization should have an idea of who the typical donor will be for the organization and should know how to best solicit donations and how to sustain a reliable source of donations. Also make a plan for an annual budget that will account for the expected revenue and expenses (i.e. personnel, administrative costs, fundraising costs, etc.). Often, an annual budget gives greater creditability to a non-profit organization when asking for donations from private donors, or applying for special grants/fellowships/loans.
What to Know About Incorporation When Starting a Nonprofit Organization
Incorporation procedures for non-profits are similar to incorporation procedures for a general for-profit business. Generally, non-profit organizations incorporate in the state they are operating. You should contact your Secretary of State to determine what forms are necessary to apply for non-profit incorporation.
Legal Name Considerations Before You Start a Nonprofit Organization
In order to incorporate your non-profit organization, you must select a business name. States vary on their requirements on picking a business name. Generally, the business name must be unique (not used by another corporation within the state you are incorporating in), include the word "Corporation" or "Incorporated" within the business name, and not contain words that suggest an association with a specialized entity (i.e. federal, national, bank, doctor, trust, cooperative).
Understand Articles of Incorporation Before You Start a Nonprofit
The non-profit organization must file its Articles of Incorporation with the designated state office, generally the Secretary of State. Filing fees vary depending on the state and range from $20 to $120.
Why Creating Bylaws Is a Key Step in Starting a Nonprofit Organization
Beyond the Articles of Incorporation, a non-profit corporation (or any corporation in general) should create bylaws that will detail how the corporation will be operated. The bylaws should specify how the business will be run, who will make the decisions, how the decision-makers will be selected, etc. This document does not need to be filed with the state, however a non-profit corporation should keep a copy of the bylaws within its principal place of business.
Organizing Your First Board Meeting When Starting a Nonprofit
After filing the Articles of Incorporation, the non-profit corporation should hold its initial organization meeting. During this meeting, the corporation should appoint directors to its board (if not already listed within the Articles of Incorporation), appoint the corporate officers (i.e. CEO, CFO, COO, etc.), adopt the bylaws, set the budget for the fiscal year, designate a bank, and select a corporate seat. Minutes of the meeting should be recorded and copies held within its principal place of business.
How to Get an EIN When You Start a Nonprofit Organization
You will need to apply for an Employer Identification Number with the IRS. The EIN or Federal Tax Identification Number is necessary for tax purposes. The EIN is also necessary to apply for tax exemption. A corporation can apply for an EIN online (through the IRS website), over the phone (800-829-4933 from 7am to 10pm in your local time), or by mailing/faxing Form SS-4 (available on the IRS website). Your state may also require its own Employer Identification Number or account for tax purposes. Please contact your Secretary of State for the necessary forms/applications for your state employer identification number/account.
Applying for Tax Exemption: A Crucial Step in How to Start a Nonprofit Organization
As with any entity/corporation, your non-profit corporation will initially be subject to federal, state, and local taxes. You must apply for federal tax exemption to enjoy tax exemption from the federal, state, and local governments. Some states require its own tax exemption application; however other states simply apply a federal tax exemption to state taxes as well. Certain local governments also allow tax exemptions for non-profit organizations. You should consult your own local government to learn what tax exemptions (if any) are given to non-profits within your jurisdiction.
Other Legal and Operational Considerations Before Starting a Nonprofit Organization
Depending on the jurisdiction and the actual business of the non-profit corporation, other considerations are necessary. Regulation of non-profit organizations is generally under the authority state's Attorney General. Certain states require non-profits to register with the State Attorney General.
Businesses generally require some local and/or state license/permit to conduct business. These licenses and permits can vary depending on the jurisdiction and the business your non-profit corporation is conducting and so your local government should be contacted for more details. Generally, your local county or city clerk's office will be the best source of information for these licenses and permits. The non-profit corporation may be required to pay a nominal fee for the licenses/permits.
Generally, a federally tax-exempt non-profit organization is eligible for reduced postal rates for certain types of mail. Contact the U.S. Postal Office for more details. Finally, a non-profit corporation should obtain any appropriate insurance. A non-profit corporation should consult a professional to consider what insurance may be necessary for the corporation.
Common NonProfit Questions
What should I know before starting a nonprofit organization?
You'll need a clear mission, a solid plan for funding, and a group of people to help govern the organization. It's also important to understand the legal and tax responsibilities involved. Starting a nonprofit takes time and planning, but it can be incredibly rewarding with the right foundation.
Is a mission statement required before starting a nonprofit?
Yes, your mission statement is one of the first things you'll need. It explains what your organization does, who it serves, and why it exists. A strong mission helps guide your decisions and is often required when applying for tax-exempt status.
Do I need a board of directors before I start a nonprofit?
Most states require a board of directors to incorporate a nonprofit. You'll need at least a few individuals who can help oversee the organization and make decisions. Choosing the right board members early helps set a strong direction from the start.
What documents are needed before incorporating a nonprofit?
Common documents include your articles of incorporation, bylaws, and a clear statement of your purpose. You'll also need to gather basic details like your board member information and a proposed name for the nonprofit. These documents are key to getting started legally.
What is the role of bylaws in starting a nonprofit?
Bylaws outline how your nonprofit will operate. They cover things like how decisions are made, how meetings are run, and what responsibilities board members have. You'll need bylaws in place before applying for tax-exempt status and to stay in good standing with the state.
