How to Form a Non-Profit Organization

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Form a Non-Profit Organization
Form a Non-Profit Organization

There are millions of people and causes that need champions. You can help provide a service to a cause that you feel is important by starting your own non-profit organization.

Decide what your non-profit organization will do. Find social issues that you would like to help. Contact local social service agencies to see what areas of service they need help with. After you have come up with a list of possibilities, narrow your choice to one issue or service.

Create a mission statement for your non-profit organization. To do this simply state what overall goal or purpose your organization will have. Generally, mission statements are about two or three sentences long, but some can fill several pages. You should include the main benefits the organization will provide to clients, who your target clients will be, how you hope your organization will be received by the public and what values you will infuse into your organization to make it effective.

Decide what type of non-profit organization you want to start. There are three legal forms that a non-profit organization can take. They can be a corporation, an unincorporated association or a charitable trust. The type of business format that you choose will greatly depend on your anticipated funding. The most basic form of non-profit is the unincorporated association. This type of non-profit has the least up-front legal steps but it also has a lot of problems to deal with after its formation. For example, in most cases if you use the unincorporated association business structure you won't be able to receive grants from third parties, and may have problems defending your non-profit tax status. Charitable trusts can also be used as a non-profit business structure. This business structure allows the non-profit to be easily recognized by the IRS as a tax exempt company, but it leaves the board at risk for personal liability if the non-profit is sued or if the business fails. The most secure non-profit structure is the incorporated form. This form of non-profit is recognized by the IRS as a tax exempt entity and provides the board members with protection from personal liability due to claims against the non-profit. If you don't know which structure to use, seek legal counsel.

Determine the name of your non-profit.

Recruit board members to meet the needs of your non-profit and to meet the requirements set out by your state. In some cases, a small advisory board may be all that is required by the state.

Find a lawyer that you can consult with during the incorporation process. You don't necessarily need to have the lawyer do all of the work associated with incorporation, but they can be used instead as a guide through the process.

Set up a bank account for your non-profit organization. Look for a bank that is familiar with the banking needs of small non-profit organizations.

Set up an accounting system. To do this you may need to invest in a qualified accountant. You may want to contact your state's board of certified public accountants to get a list of certified accountants in your area.

Find an insurance agent that can help you develop an insurance policy that will protect you and your non-profit organization. You will probably need liability insurance, property insurance. If you plan on hiring employees you will also need workers' compensation insurance, health insurance and life insurance (Health and life insurance is optional).

Identify the basic information about your non-profit organization. You will need to include the name of your non-profit, where the headquarters will be officially located and what the purpose of your non-profit will be.

Draft your purpose clause. Your purpose clause will need to broadly define what goals your organization will have. Keeping these goals general and broad will give you flexibility in what you can actually do and what services you can provide to your clients later on.

Decide if you want your non-profit organization to be a membership organization or not. This decision will need to be based on how you want your non-profit organization to be run. For example, if you make your non-profit a membership organization, then they may have a say in how money is spent and how the organization is run.

Look for an article of incorporation template online. See below for a link to a site that offers a free article of incorporation for non-profits.

Check with your state to see if by-laws are required in your articles of incorporation.

Draft your by-laws for your non-profit. The by-laws should outline how your non-profit organization's board members will be organized, governed and how the organization's employees will be situated in the company. If your state requires by-laws, you will need to include them with articles of incorporation. If your state does not require them, you will need to draft them as a separate document. Consult with a lawyer who specializes in incorporation to make sure that your article of incorporation will set up your non-profit the way that you intended it to be set up.

Present the draft of your articles of incorporation and your by-laws to your board members. They will need to approve the articles and by-laws before you file them with the state. If there are changes recommended then the changes should be made, reviewed and approved before filing the articles.

File your incorporation papers with the Office of the Secretary of State or the Attorney General, depending on your state's laws.

Determine if other forms or documents are required. When you submit your articles of incorporation to the state, they may request that you submit other forms and documents. Follow their instructions.

Get approval from the board to file for tax exempt status.

File for federal tax exempt status with the Internal Revenue Service. You can find the forms for this on the IRS's Web site. You can find that address below.

File for state tax exempt status. You will need to wait for federal approval for tax exempt status before you contact your state's department of revenue. You can find contact information for your state's department of revenue in your local phone book, under the government section, or you can conduct a keyword search online for "[Your state's name] department of revenue."

Research local permit and business requirements. You may need to obtain a permit to solicit funds, get a business license, or file city level tax exempt status forms.

Obtain a mail permit from the U.S. Postal Service. This will grant you a bulk mail discount for your fundraising mailings.

Take care of employment filing needs. If you plan on hiring employees, you will need to file for a federal employer number. This is a free process that you can handle in-office. There is a simple form that you will need to fill out and file with the IRS. Once approved, the IRS will mail you a form with your federal employer number. You will also need to file for a state employer number. Contact your state's department of revenue for the proper forms. Finally, make sure that you have unemployment insurance and the proper tax reporting forms needed for meeting employment laws.

Determine what staff members you will need. Create a list of positions that are needed to run your organization. For example, a basic non-profit organization will need an office manager, fundraiser, promoter and an executive director.

Find office space and buy equipment and furniture.

Set up the office.

Recruit staff members. Utilize local employment agencies, referrals from board members and local media to advertise your open positions.

Review resumes and look for applicants that have the basic skills needed for each position.

Set up interviews with your top applicants and invite board members to sit in on the interviews.

Interview applicants.

Confirm their experience and contact their references. Don't skip this step.

Hire the cream of the crop.

Train staff.

Develop a fundraising plan of action. Get input from the board members and from your employees. Solicit outside help if you need to.

Launch your fundraising program.

Tips & Warnings

  • You can save money by drafting your own legal documents and then have them reviewed by an attorney.
  • There are a lot of resources available online that can help you through the process of starting a non-profit organization.
  • Consult an attorney if you need help starting your non-profit organization.
  • Make sure that you have filed all the required forms and documents with your state government.
  • Make sure that you have all the required insurances before you open your doors for business.
  • Understand the requirements to be considered a non-profit organization with tax exempt status before you start operating so that you don't create a situation where the federal government deems that you are actually a for-profit organization.

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