How to Start a Nonprofit Organization?
A great way to give back to your community and help those in need is by starting a Non-Profit Organization. Non-profit organizations examples are usually educational, scientific, religious or charitable institutions. There are several things to keep in mind if you want to open a non-profit organization. This type of organization also enjoy the following benefits:
- Limited liability protection: Directors and officers are not personally liable for the organization’s debts and liabilities.
- Perpetual existence: The corporation continues even if a director leaves the business or passes away.
- Eligibility for grants: Nonprofits may be eligible for certain public and private grants.
To open a non-profit organization means careful planning and understanding all the steps involved in the process. It is important to take note that growing a nonprofit organization structure may take years of effort and hard work.
The information provided below is only general knowledge of setting up a non-profit organization. Be reminded that these procedures may vary for each state, so we recommend to consult with a legal or tax professional to further assist you in starting a non-profit organization.
Required Nonprofit Tax Forms for opening a Not for profit organization
The IRS requires nonprofit organizations seeking tax-exempt status to file Form 1023. Several states also require organizations to apply for state-level tax-exemption. The nonprofit status most commonly applied by organizations is the Internal Revenue Service’s 501(c) tax-exempt status. Organizations that have the 501(c) status have the following advantages:
- Tax-exempt status: They can apply for federal and state tax-exempt status
- Enhanced credibility: Potential donors may be more inclined to give to an organization that has an official nonprofit status
- Tax-deductible donations: Donations made by individuals to the nonprofit corporation may be tax-deductible
- Possible exemption from certain property taxes.
- Reduced postage rates.
Steps to open a Non-Profit Organization
Following are some important points you need to keep in before starting a non-profit organization:
You need to conduct a needs analysis
To open a non-profit organization, you need to find out if organizations (nonprofit, for-profit, or government) are already doing similar work in your community. You might have a difficult time getting people to support your organization if the services you will give is already provided by others. Find also a demographic data that shows a need of your services. This will support your endeavor in starting a non-profit organization.
Public charities must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3) of the Internal Revenue Code. In setting up a non-profit organization, you need to get grants to pay yourself a salary, stop now and find another option. Many new nonprofits aren’t even ready or eligible to get grants, so make sure that you are prepared with these requirements before starting a non-profit organization.
Make a Plan B
Setting up a nonprofit organization might be the most difficult way to serve your community. The biggest challenge for this is that most new nonprofits have a hard time developing and maintaining a reliable stream of income. It is known that less than half of nonprofit startups survive beyond five years. Of those that survive, one-third have financial problems. With this, it is important to consider an alternative that can let you operate a non-profit organization, but with less cost and effort. This will help you focus more on serving your community and at the same time, develop experience and support that will help you a lot once you decided to form a separate organization.
You need to build a solid foundation
Let’s start it by developing your mission statement. This is very important because it includes the main purpose of your non-profit organization, the specific groups you will serve and how you will serve them. The decision and action of your organization must be included in your mission statement.
Building a non-profit organization means having a solid business plan. A business plan can help a non-profit company describe its intentions on doing their mission in specific details. This business plan can also be used to outline a new project or business venture.
As your nonprofit’s governing body, your board must fulfill a number of roles and legal responsibilities. In order to accomplish these duties effectively, the board will change as your non-profit organization grows. A systematic approach to board development, including recruitment, orientation, training, evaluation, and the cultivation of prospective board members, is needed for the longevity and success of your non-profit organization.
Incorporate Your Nonprofit
You need to incorporate your Non-profit because having a formal structure in your non-profit organization will give credibility to your programs and services. Also, the corporate structure limits the liability of the organization’s officers and directors. The IRS also requires organizing documents and governance policies and procedures that are usually only associated with corporations. Filings and fees will vary by state. Take note that incorporation registers your nonprofit, but it does not make your non-profit organization 501(c)(3) exempt.
File for 501(c)(3) Tax-Exempt Status
Apply your non-profit organization for exempt status with the Internal Revenue Service (IRS). Be reminded that the user fee will be $275 or $600, depending on your application method. It also takes 3-12 months for the IRS to return its decision, depending on how many questions the IRS will ask about your application.
First, register with your state’s agency. Each state has an office charged with the oversight of charitable organizations and charitable solicitations (usually its the Attorney General). If you plan to solicit contributions in other states, you will need to register in those states too.
Next, you’ll need to prepare for the annual reporting requirements. In most cases, an exempt organization must file some version of Form 990 with IRS, depending on the financial activity of the organization. In Form 990, it shows your finances, activities, governance processes, directors, and key staff, and it is open to public inspection. States have their own reporting and renewal requirements too, and these will vary with each state. It is recommended to track your organization’s finances and activities in such a way that will help these annual reporting requirements to be accomplished smoothly.
The important part to open a non-profit organization is understanding the steps and following the rules. Helping others also means being responsible in your organization for its longtime success.