Do you want to make a difference in your community but don’t know how to get started? Starting a nonprofit might be the answer for you! In this blog post, we will walk you through 10 steps that will help you launch your very own nonprofit organization.
We’ll cover everything from setting up your legal structure to building a fundraising strategy. So whether you’re just getting started or are looking for ways to improve your existing organization, read on to discover how to start a nonprofit!
Establish Business Need
Before creating your entity, you need to first make sure that there is an actual need for it in your community or target area. To do this, you can conduct a needs assessment. This will help you determine the problem that your nonprofit will aim to solve.
There are a few different ways to go about conducting a needs assessment. One way is to simply talk to people in your community and get their feedback. You can create polls on social media for free and distribute them to people in your area.
You can also look at data that’s already been collected, such as census data or surveys. This can give you a more objective view of the needs in your community.
Once you’ve established that there is a need for your organization, it’s time to research the competition. Are there already other organizations working to solve the same problem?
If so, what sets your organization apart? If there are organizations in existence that focus on the same problem, can you solve it in a different way?
Determine Financial Needs
The financial needs of your nonprofit will vary depending on the size and scope of your organization. To get started, you’ll need to figure out how much money you’ll need to cover your start-up costs. These can include things like office space, supplies, marketing materials, and website design.
You’ll also need to determine what type of financial support you’ll need to sustain your organization long-term. This could be in the form of grants, donations, or other forms of fundraising.
Though there are limited exceptions, grants are generally not provided to nonprofits at startup time. Most foundations want to see that the operation is viable and sustainable before providing any funds.
The fact is that most nonprofits are funded by the founder(s) or through donations from private sources. You could also attempt to find a fiscal sponsor.
There is also of course the possibility of applying for a bank loan. However, since an infant organization doesn’t have much to offer in terms of collateral, this would usually involve founding members putting up property or other assets.
Name Your Organization
Your organization’s name is one of the first things people will see, so it’s important to choose something that reflects your mission.
Brainstorm a list of potential names with your team. Keep in mind that you’ll want something that’s easy to remember and spell. You might also want to consider using keywords related to your cause in your name.
Once you have a list of potential names, run them by a few trusted individuals for feedback. After you’ve narrowed down your options, do a quick internet search to make sure the name isn’t already being used by another organization.
You can also check with the Secretary of State’s office in your state to see if there are any naming restrictions you need to be aware of.
Establish a Board of Directors
Your board of directors is a group of individuals who are responsible for governing your organization. Members are decided at a formation meeting, which must be detailed in writing and retained for compliance purposes.
The board is typically made up of community leaders, business professionals, and other experts in their field. It’s important to make sure that your board members share your vision for the organization and are committed to its success.
When choosing board members, look for individuals with a variety of skills and backgrounds. You’ll want people who are good at financial management, marketing, fundraising, and legal issues.
States have varying requirements regarding who can serve as directors, so it’s best to check with your state’s division of corporations or equivalent.
Your board members will be responsible for establishing both the overall mission as well as the vision. In other words, they need to articulate what purpose your organization is going to serve as well as what long run accomplishments are planned.
One person must serve as the incorporator, which is the person who creates the Articles of Incorporation, which we will cover later. The three major roles, or Officers, in most nonprofits are the following:
- President: Responsible for overall governance, not necessarily management, of all activities. Ensures that the mission of the organization is carried out effectively. Reports to the board of directors.
- Secretary: Responsible for keeping records of meeting minutes, organizational affairs, and votes. The Secretary also assures compliance with corporate bylaws and serves as the main communication channel for board members.
- Treasurer: Keeps financial records, maintains banking relationships, manages assets, communicates with donors about financial strategies, investigates financial opportunities, manages risk.
Each state has its own laws governing what legal duties nonprofits are responsible for, so check with yours for more information.
Choose a Registered Agent
A registered agent is an individual or organization that agrees to receive legal documents on behalf of your nonprofit. The registered agent must have a physical address in the state where the nonprofit is incorporated and be available during business hours to accept service of process.
The registered agent can be anyone you choose, including yourself, another board member, or a professional registered agent service.
If you decide to use a professional registered agent service, make sure to do your research. Read reviews and compare pricing before making your decision.
You can usually find a directory of registered agents active in your state by visiting its Secretary of State of Division of Corporations website or running a simple internet search.
After analyzing 10 of the more popular registered agent services out there, we saw prices range from $35 to $405 annually, with the average being $168.
The next step is to incorporate your nonprofit. This will give you legal protection from liability, allow you to apply for 501(c)(3) status, and make it easier to solicit donations.
To incorporate, you’ll need to file Articles of Incorporation with your state’s Secretary of State or Division of Corporations. This step is performed by the incorporator.
The Articles of Incorporation are a document that includes the following information:
- The name of the corporation
- Name and address of registered agent
- The names and addresses of the directors
- The purpose of the corporation
- The incorporator’s signature
You can usually find templates for the Articles of Incorporation on your state’s Secretary or Department of State website. If you are looking for a good boilerplate version you can adapt, check out PandaDoc’s Articles of Incorporation template.
It is important to know that this is not a one-time filing. An annual report must be made each year by a specified date to avoid fees and potential corporate dissolution.
Bylaws are a document that outlines the rules and regulations for the operation of your nonprofit. They should be the first course of action taken by a board of directors after the Articles of Incorporation are filed.
A good set of nonprofit bylaws should contain:
- The name of the organization
- Corporate seal
- Board role, size, and compensation
- Length of time board members can serve
- Meeting frequency, minimum required attendance, and length of advanced noticed needed before meetings
- When and how board members are elected
- Board resignation and termination requirements
- How nominees are decided when filling any vacancies
- Officer positions and their duties
- Quorum, or how many members must be present to vote on affairs
- The process required to amend bylaws
You can be more detailed if you choose. Although it requires you to create a free account before you can save or print, Rocket Lawyer provides a great nonprofit bylaws generator.
Obtain an Employer Identification Number (EIN)
The Employer Identification Number, or EIN, is a nine-digit number assigned by the IRS. It’s used to identify businesses and nonprofits for tax purposes.
You will need one to open a bank account. You can apply for an EIN online, by fax, or by mail.
You need to make sure your Articles of Incorporation have been officially processed by your state before applying. The form you will be filing is an SS-4.
If you are applying online, you’ll be entering the same information required by this form. That information is:
- Entity details: name of entity as registered with incorporating state, DBA if applicable, address of company, and name and SSN/EIN/TIN of the administrator or responsible party
- Entity type
- Reason for requesting EIN
- Date business activities will begin
- Closing month of the accounting year
- If applicable, the number of employees expected in the first year and form 941 filing frequency preference
- If applicable, when wages were first paid
- Description of business activities and principle products or services
If you’re applying online, you will receive your EIN number instantly. By fax, the IRS claims a turnaround time of four days. If you decide to apply by mail, you could be looking at about four or five weeks.
Once you have your EIN, be sure to keep it in a safe place. You’ll need it when you file your taxes and when you open a business bank account. Instructions for the form can be found here.
Apply for Federal and State Exemptions
The next duties you need to handle when starting a nonprofit are your tax exemptions. Although there are multiple tax exempt statuses, the vast majority of nonprofits seek 501(c)(3) status.
Nonprofits with this status are, by IRS definition, charitable, scientific, educational, religious, literary, preventing cruelty to animals or children, performing tests for public safety, or fostering amateur sports competition either domestically or internationally.
To get your 501(c)(3) status, you must submit an IRS Form 1023. The form is 25 printed pages long and could reach as long as 100 pages when considering all of the exhibits, schedules, and attachments required.
The IRS also provides a shorter two page version, Form 1023-EZ, that may be appropriate for qualified small entities. If your submission is approved, you will receive a Letter of Determination in the mail.
The IRS does not provide a timeline for the process. It is said that the IRS approves approximately 95% of these forms, though later analyses reveal approximately 20% of these approvals are erroneous.
If your submission is approved, you will receive a Letter of Determination in the mail. The IRS does not provide a timeline for this process.
If you choose to submit the 1023-EZ, you will get away with paying $275. If you are required to complete a standard Form 1023, be prepared to pay $600 for the filing.
If your IRS Letter of Determination states that your application was approved, you do not have to go through further review in several states. In these jurisdictions, the IRS letter is good enough and no further filing is needed.
Georgia and West Virginia still require 501(c)(3) nonprofits to file a tax return, and the first one should include a copy of the Letter of Determination.
States that still require filing even after your federal approval are:
- District of Columbia
- New York
Washington state is the only state that generally does not allow income tax exemptions for nonprofits. A limited number of states also allow nonprofits to apply for sales tax exemptions.
Register as a Charitable Foundation
In order to solicit donations from residents of a given state, you may have to register as a charitable organization there. About 40 states have registration requirements.
However, many states also have exemptions for certain nonprofits, especially those who bring in under a certain amount of money or pay outside people to raise funds. Check with your state government’s website for more details.
Open a Bank Account
Finally, you will want to open a bank account when starting a nonprofit. This will allow you to keep your personal and business finances separate, which is a key requirement to maintaining incorporated status.
It will also provide a clear record of all financial transactions should the IRS ever decide to audit your organization. Additionally, donors will feel more comfortable about making payments out to a business bank account rather than a personal one.
When you go to open your account, you will at need at a minimum your EIN number, Articles of Incorporation, and a photo ID. Some banks will also require a list of your officers or proof the board approved the opening of the account.
These requirements can be fulfilled with meeting minutes or a copy of the organization’s bylaws. You will also need the signatures of anyone you plan on having cosign on the account.
This is usually the Treasurer and at least one other officer. Most bank accounts have a minimum deposit to open an account.
You’ll also want to determine how much money you are required to keep in the account each month. Failing to maintain a minimum balance can cause fees to add up.
Here we have discussed how to start a nonprofit in 10 steps. It may seem daunting at first, but it is not an extensive ordeal, especially if you’re a smaller organization.
Between the IRS and each state government’s websites, enough resources are provided to get the job done on your own. It is important to remember that some filings must be repeated annually, so check each individual requirement when you’re making your initial submissions.