How to Set Up Your Own 503(c) Business

Setting up your own 501(c)3 can be a rewarding experience for you and your family.

Section 501(c)(3) is the portion of the United States Internal Revenue Code that allows for federal tax exemption of nonprofit organizations, specifically those that are considered public charities, private foundations or private operating foundations. According to the National Center for Charitable Statistics at the Urban Institute, there were 455,693 501(c)(3) organizations in the United States as of 2010. Setting up your own 501(c)(3) takes time and effort, but the endeavor can be rewarding.

Things You'll Need

• Business plan
• Employer identification number
• Computer

Instructions

1. Write a business plan. Include a definition of your organization's purpose and form, and a mission statement that explains why people will want to invest in your organization. Your business plan should also include a statement of your business goals and objectives, a description of your target market and competition, projected financial data and a marketing plan.

2. Select individuals to serve on your Board of Directors. Forming a Board requires careful thought and extensive recruitment efforts. Each state has separate regulations that determine the minimum size of the Board. According to the National Consumer Supporter Technical Assistance Center, typically there are three people who serve on a Board for a 501(c)(3); however, the optimum number of people on your Board should be determined by the needs of the organization. Choose Board members who are business-savvy and passionate about what you do.

3. File articles of incorporation with your Secretary of State. Articles of Incorporation are an official statement of creation for your organization organization. They are important because they protect your Board and your staff members from legal liabilities incurred by the organization. The specific requirements governing how to incorporate your 501(c)(3) are determined by each state. Check with your state Attorney General's office or Secretary's office to find out the requirements for your state.

4. Establish bylaws and Board policies. Bylaws are the rules of how your organization operates. Bylaws are not required to file for 501(c)(3) status. However, they can help you govern and organize your organization. Draft your bylaws with the help of an attorney and your Board.

5. Obtain an employer identification number (EIN) from the Internal Revenue Service (IRS). An EIN is a federal identification number used for tax purposes.

6. Apply for federal tax exemption. According to the IRS, to be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes, and none of its earnings may go to any private shareholder or individual. The IRS has a tool on their website to walk you through the application process.

7. Apply for state and local tax exemption. Contact your Secretary of State, Department of Treasury or county or city clerk's office to see if your organization qualifies for state or local tax exemption.

8. Apply for licenses and permits. Each state has different rules and regulations for obtaining permits for 501(c)(3) businesses. For example, you may need to apply for a solicitation license from your city. Check to see your city's licensing requirements by contacting your city manager.

9. Find a location and start hiring. Once you have all the paperwork and legal requirements out of the way, you can focus on operations. Choose a location for your business and begin recruiting employees based on the unique needs of your organization.

References

• Foundation Center: Establishing a Nonprofit Organization
• Society for Nonprofit Organizations: Starting A Nonprofit Organization
• National Consumer Supporter Technical Assistance Center: How to Establish a 501c3
• National Center for Charitable Statistics at the Urban Institute: Number of Non-501(c)(3) Exempt Organizations in the United States, 2010
• IRS.gov: Section 501(c)(3) Organizations
• IRS.gov: Exemption Requirements - Section 501(c)(3) Organizations

Resources

• IRS.gov: Tax Exempt Status for Your Organization
• IRS.gov: Application Process