Starting a nonprofit organization can be a simple matter of following directions on your secretary of state’s website, or a more complex matter if you want Internal Revenue Service recognition. Understanding the different types of nonprofit organizations and how they operate will help you develop the correct plan for creating your association, charity, foundation or other nonprofit entity.
Meet With Prospective Board Members
The first step in starting a nonprofit is to meet with the key stakeholders to decide what the goals and purpose of the organization will be. These should include general and specific goals, such as the overall nonprofit mission and the tactics and techniques the organization will use to meet its goals. The discussion should include where the nonprofit will operate, how it will initially be funded, how it will generate funds on an ongoing basis, what type of business or tax-exempt status is will obtain, and any limits on its activities.
Review the Different Types of Nonprofits
During your initial meeting with stakeholders, decide whether you need to obtain federal tax-exempt status. Some nonprofits never apply for this recognition because they receive all the tax benefits they need at the state level. For example, a nonprofit incorporated in a particular state might not pay sales tax in that state or might be eligible to receive specific grants. If the organization will not accept donations as part of its activities, it might not need tax-exempt status. Charities that accept and distribute donations apply to the IRS for tax-exempt 501(c)(3) status. Trade associations that serve business professionals obtain 501(c)(6) status. Local civic organizations obtain 501(c)(4) status. The IRS offers dozens of 501(c) classifications. Visit the IRS website to determine which status your organization will need.
Create a Business Plan
A nonprofit organization should have a written business plan like any other new business. This should include a mission statement, description of the purpose of the organization, marketing plan, budget projections, staffing and operating plan, fundraising plan, and a list of key board members and employees. Corporations often purchase directors and officers insurance and a general liability policy. A nonprofit corporation will need bylaws, which outline how the organization will operate. Information in bylaws includes the procedures for electing or appointing board members, when meetings will be held, what constitutes a legal board meeting, how staff will be hired, limitations on the activities of the organization, a conflict of interest policy, how votes of a membership will occur and the procedures the board must follow to change the bylaws.
Incorporate at the State Level
No matter what type of nonprofit organization you wish to be, you will need to start by incorporating at the state level. Visit your secretary of state’s website to learn the procedure. You will need to file a document known as the Articles of Incorporation. This document provides the name of the organization, its purpose, its address, the names, titles and addresses of the board of directors and what will happen to the organization’s assets if the organization is dissolved. Articles of Incorporation are not as detailed as bylaws. You will likely pay a filing fee of $50 to $100 to incorporate. Once your corporate application is approved and your status has been granted, apply for a federal tax identification number, also known as an employer identification number. Follow the instructions at the IRS website, which will include providing documentation of your incorporation at the state level.
Applying for Federal Tax-Exempt Status
If you wish to receive federal tax-exempt status, which reduces the amount of taxes you pay and allows donors to get a tax deduction for donations made to your organization, start the process at the IRS website. Once you receive your federal ID number, follow the steps at the IRS website to apply for 501(c) status. You will need an attorney to file your papers, and most likely, guide you through the process of compiling your application papers.
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