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Starting a Non-Profit Organization

Starting a non-profit organization can be a lengthy, time consuming, and often confusing process. However, the difficulties of the process can be minimized by following a consistent series of steps and seeking advice when needed. Advantage Consulting Services offers many free services and resources to individuals or groups interested in developing new non-profit organizations. 
If you have any questions about starting a non-profit organization, or if you would like more information about additional resources or the services we provide, please contact us by sending an email stating your questions or your specific request for information. 

Steps in Starting a Non-Profit Organization

There is a lot to consider and several things you need to do before your new non-profit organization is up and running. While you can do most of this work yourself, it can be overwhelming. Advantage Consulting Services is here to help! Contact us if you have questions about any of these steps. We offer many free services for non-profit organizations, so please do take advantage of our experience and our willingness to help a good cause. Together, we can make sure the steps you take lead you and your organization down a path a success.

1.  Draft a Mission Statement
Draft a brief mission statement that describes the charitable purpose of your new organization; your board should soon review it during strategic planning and authorize the statement. (For more information about drafting a mission statement, scroll down and read the article "Get Clear About the Purpose (the Mission) for Your New Organization" below).
2.  Recruit Board Members
If you plan to incorporate in your state, recruit at least enough board members to meet state requirements for a corporate board (contact state attorney's office); if you don't plan to incorporate, consider an informal advisory board to help guide you.
3.  Draft Articles of Incorporation and Get Board Approval
Articles of Incorporation specify the legal description of your organization and power to the board; you'll need to draft these only if you plan to file for incorporation with your state; the Board should approve the Articles before submission.
4.  Draft Bylaws
Bylaws specify how the board will operate and configure the staff; some states require these; some of this information will be in the Articles if you file Articles; the board should approve the bylaws,
5.  Consult Professionals
Contact a consultant and/or lawyer to help you file articles of incorporation (if you plan to incorporate), application to IRS for tax-exemption (if you plan to seek exemption from federal taxes); you can do most of the work yourself, but at least have a consultant or lawyer review the materials before submission.
6.  File for Incorporation with Your State
Register for incorporation including submitting your drafted and approved Articles (if you plan to incorporate); may need to submit bylaws, too; also find out what various reports the state wants from nonprofits. (Note there is usually a fee required for filing that varies from state to state, but usually ranges between $10 and $25).
7.  File for Federal Tax-Exempt Status
Apply for tax-exempt status (to be exempt from paying federal taxes); board should approve this filing before submission.  (Note there is a $500 filing fee).
8.  File for State Tax-Exempt Status
Once you get federal tax exemption, file for any state tax exemptions.
9.  File for Tax-Exempt Status with City Government
Apply for property tax exemption from city (if your organization will be owning property.  This is not necessary if you are only renting office space.  In that case, contact your local realty association for information about reduced rental rates for non-profit organizations.  Some cities and private property owners have been known to donate office and program space to non-profit organizations free of charge, so be sure to find out what's available in your community).
10.  Find an Accountant and Open a Bank Account
Consult with an accountant or other finance expert to help you set up basic bookkeeping system; seek a bank that understands needs of new, small nonprofit organizations and open an account.
11.  Apply for Solicitation License
If you plan to solicit funds, your city may require a solicitation license.
12.  Apply for a Bulk Mail Permit
This permit gives you a discount on bulk mailings (for newsletters, mail solicitations, etc.).
13.  Apply for an Employer Identification Number (EIN)
Once you start to hire employees, get federal employer number to withhold income and FICA.
14.  Purchase Workman's Comp and Unemployment Insurance
This is necessary when you start hiring employees.
15.  Purchase General Liability Insurance
Every non-profit organization needs to have general liability insurance for property as well as liability insurance to protect the Board of Directors, volunteers and staff. 

Get Clear About the Purpose (the Mission) for Your New Organization

Perhaps the best way to really clarify to yourself what you intend to accomplish by starting a new nonprofit is to write a basic mission statement for your organization. You'll soon need this mission statement anyway if you plan to incorporate your nonprofit (more about incorporation a little later on). The following guidelines may be helpful to you when writing your first, basic mission statement.

At is most basic, the mission statement describes the overall purpose of the organization. It addresses the question "Why does the organization exist?"

The statement can be in a wide variety of formats and lengths, ranging from a few sentences to a few pages. At this stage in the development of your nonprofit, it might be best to keep your mission statement to at most about half a page.

When writing the mission statement, try include description of what you think will be the new nonprofit's ...

  • primary benefits and services to clients
  • groups of clients who will benefit from those services
  • values that will guide how your nonprofit will operate
  • how you'd like others to view your nonprofit

It's often useful to refine the first, basic mission statement by adding or deleting a sentence or a word from the mission statement until you feel the remaining wording accurately describes the purpose of the new nonprofit organization. 

Consider Fiscal Sponsorship to Jump Start Your Organization

In some cases, you might find and work with another nonprofit organization that will act as your fiscal sponsor. A fiscal sponsor might be useful to you if your nonprofit:

  • Does not have sufficient resources to handle startup costs and fees

  • Does not have sufficient skills initially to manage your finances

  • Will address a community need and then no longer need to exist. 

Do You Need a Lawyer to Start Your Nonprofit?

You can do much of the work yourself to get incorporated and/or tax-exemption and/or tax-deductibility, but you should have some basic guidance and advice from a lawyer who understands nonprofit matters. For example, it's very important how you characterize your plans when filing for incorporation with your state and/or for tax-exemption and/or tax-deductibility with the IRS -- otherwise, your new organization may be deemed a for-profit or you may have to pay federal taxes (among other taxes) on your income. In addition, there are various reports and filings you may have to submit. A nonprofit-knowledgeable lawyer can help you a great deal. Ask other nonprofits for references to good lawyers. Ask a local funder. Call the local bar association.  

Think About What Kind of Nonprofit You Want to Start

The phrase "starting a nonprofit" can mean several things. Read the following very basic information to begin thinking about what you mean when you set out to "start a nonprofit." Keep your mission statement in mind when thinking about each of the following.

You can be a nonprofit organization just by getting together with some friends to form a self-help group, for example. In this case, you’re an informal nonprofit organization.

You can incorporate your nonprofit so it exists as a separate legal organization in order to a) own its own property and its own bank account; b) ensure that the nonprofit can continue on its own (even after you’re gone); and c) protect yourself personally from liability from operations of the nonprofit. You incorporate your nonprofit by filing articles of incorporation (or other charter documents) with the appropriate local state office. (An incorporated nonprofit requires a board of directors.) 

If you want your nonprofit (and if you think your nonprofit deserves) to be exempt from federal taxes (and maybe some other taxes, too), you should file with the IRS to be a "tax-exempt" organization. (The IRS states that you must be a corporation, community chest, fund, or foundation to receive tax-exempt status. Articles of association may also be used in place of incorporation.) Probably the most well known type of nonprofit is the IRS classification of 501(c)(3), a “charitable nonprofit’. (Being tax-exempt is not the same as being tax-deductible.)

Depending on the nature of your organization, you may be also granted tax-deductible status from the IRS. Publication 526 lists the types of organizations to which donations are deductible.

So, for example, you could start a nonprofit that is incorporated, tax-exempt and eligible to receive tax deductible donations.

The particular steps you take when starting your nonprofit depend on your plans for your organization, including the nature of its services. They also depend on how the IRS interprets the nature of your organization, including its services.




© Advantage Consulting Services, LLC doug@advantageconsultingservices.org