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Business Formation

8 Things to Consider Before Starting a Nonprofit

Ready to open a nonprofit, but where do you start?

Deborah Sweeney, CEO of MyCorporation


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.

1. Pre-Incorporation Matters

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.

2. Incorporating your Non-profit 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.

3. Choose a Business Name and Check for Availability

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).

4. Prepare and File Articles of Incorporation

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.

5. Create Bylaws

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.

6. Hold an Organizational Meeting

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.

7. Get Your Employer Identification Number

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.

8. Applying for Tax Exemptions

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 Considerations

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.

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