How to Form a Non-Profit Organization

We have all heard many times the use of the term “non-profit organization.” However, we may be hard pressed to truly define what it is, explain its use, or describe how it is formed. A non-profit organization, also referred to as a 501(c)(3), is defined as a special type of corporation that is structured to meet specific tax-exempt requirements. To qualify for non-profit status, your organization must be formed to benefit the public without passing a portion of its earnings on to its administrative or management staff. There are no shareholders in a non-profit organization. Instead, any profits that a non-profit makes go back into the organization’s budget for future public benefit. If you are interested in someday forming your own non-profit organization, here are the items that you will need in order to form one successfully.

Difficulty: Challenging

Instructions

Things You'll Need:

• Notepad
• Pen or Pencil
• Computer
• Internet access
• Calculator
• Spread sheets

1. 

   State the Purpose of Your Organization - In the first stage of establishing your non-profit organization or 501(c)(3), you will need to develop a written statement that explains the purpose for its existence. You must state what type of service it will provide to the public, and which segment of the population it plans to serve. It must also explain how it will serve the public, and what type of results it expects to earn for the clients that it intends to serve.

2. 

   Pick a Company Name - You must then choose a name for your business. The name should correlate with the type of service that it will provide, and should not infringe on the name of an existing business entity. The name should comply with the laws of your state. A fee is normally required in order to register a company name.

3. 

   File Articles of Incorporation - As the owner of a 501(c)(3), you will not normally be required to file Articles of Incorporation. However, if you choose to file, you must complete the Articles of Incorporation form, attach it to legal documents with the required information, and submit it to the registrar of companies. The government provides authorization by verifying all the information and facts. On the other hand, if you choose not to file, you must comply with the requirements for forming and operating a nonprofit corporation that has no incorporation status as they are governed by your state’s law. You can file with either your secretary of state or state attorney general's office.

4. 

   File for State and Local Tax Exemptions - You must submit the Federal 501(c)(3) tax exemption application for non-profit corporation status. Tax exemptions will allow your organization to claim the benefits of being a Nonprofit Corporation. The IRS verifies the information on the application, and afterwards will either grant organization the status of a Nonprofit Corporation, ask for additional information or simply reject your company's request for the Nonprofit Corporation status. In accordance with state law, you may be required to have the Article of Incorporation before filing for state tax exemptions. You must check with your state’s regulation to find out the requirements.

5. 

   File for Federal Tax Exempt Status - If your non-profit corporation serves charitable, educational, scientific, religious, or cultural causes, you are generally allowed federal tax-exempt status under section 501(c)(3), or sometimes section 501(c)(4) of the Internal Revenue Code. You can apply for tax-exempt status by completely filling out the 1023 application form. You can obtain the application through your local Internal Revenue Service office or from the IRS website at www.irs.gov.

6. 

   Draft Bylaws - You must draft company bylaws for your non-profit organization. Bylaws are rules and regulations an organization institutes for its administration and management. The company must maintain a good recordkeeping system of its basic rules pertaining to issues such as measures for conducting meetings, voting, and electing directors and officers. Bylaws need to be drafted and approved by the board prior to establishing your organization.

7. 

   Form Your Board of Directors - A non-profit organization also needs to have a board of directors. A board of directors is an assembly of elected or appointed officials who jointly oversee the activities of an organization, and passes regulation regarding the organization‘s mode of corporate operation.. The term board of directors goes by many other names, such as board of trustees, board of governors, board of managers, or executive board. Informally, it is normally referred to as simply “the board." As the owner, you will be required to hold annual board of directors meetings.

8. 

   Apply for Appropriate Permits and Licenses - To conduct business responsibly and within legal boundaries, many organizations need to hold certain permits and licenses that will allow them to serve the public. The type of licenses needed will depend entirely on what area, and in what capacity it will serve. Therefore, you will need to keep this in mind when you form your non-profit organization.

9. 

   Develop a Strategic Plan - Your vision of your organization’s growth potential will arise through systematic strategic planning. Therefore, you will need to outline the steps that are necessary in order to reach that potential. You will need to institute programs, and provide planning that will be utilized for at least a one-year span.

10. 

    Develop a Budget - A non-profit organization must establish an operations budget. The financial resources needed to carry out the strategic plan of your organization must be described in a budget and financial plan. You will need to work with a financial consultant in order to develop a budget.

11. 

    Set Up a Record Keeping System - Your 501(c)(3) must maintain a detailed recordkeeping system. It must hold such records as corporate documents, board meeting minutes, financial reports, and other official records, and they must be preserved for the life of the organization.

12. 

    Set Up an Accounting System - An accounting system should be established for your organization. All records of your organizations annual finances such as it profits, loss, expenditures, and earnings need to maintained and well-ordered. You will need to use the services of a certified public accountant who is experienced in nonprofit accounting.

Tips & Warnings

• Do research before setting up your non-profit corporation.
• Seek the assistance of an experienced certified public accountant.
• Get the facts about the regulations of your home in regard to forming your non-profit organization.
• Form out all forms and applications accurately.
• Do not rush into forming your non-profit organization prior to getting the facts.
• Never rely on second-hand information.

Resources

• IRS 501c3 Application
• How to Form a 501(c)(3) Nonprofit Corporation
• Application for Recognition of Exemption
• How to Form a 501(c)(3) Nonprofit Corporation - Small Business
• Forming a 501(c)(3) public charity - LegalZoom.com

[mikeg21v]

on 10/1/2009 I have been working on setting up a non-profit organization for social service agencies. I had some of these steps, but not all. Thanks. 5* and rec

[cygnetbrown]

on 9/23/2009 This is a fantastic step by step check list of what to do to form a non profit! Well written. I love it!

[mommyhen42]

on 7/31/2009 Great info, I am currently in the research and development stage of starting a nonprofit that will benefit the local community with eventual outreach to other areas in need

[ceholmes]

on 7/28/2009 well written and very informative! 5* and recom

[midcenturymaven]

on 7/26/2009 Very complete set of instructions for someone who is up to the challenge of forming a non- profit organization. If I ever encounter such a brave soul I will direct him or her to this article.