Steps to Starting a Nonprofit Organization
After making the decision to incorporate, there are a few things to keep in mind when starting a non-profit organization. Here is a brief list of some of the things that must be done.
1. Understand the Purpose of a Non-Profit:A non-profit corporation is an organization whose primary objective is to support some issue or matter of private interest or public concern for non-commercial purposes. There are different types of non-profits. Some are exempt from income and/or property tax and are able to receive tax-deductible charitable contributions; one such nonprofit is a 501c3 nonprofit corporation, one formed for very specific purposes that benefit the public (such as scientific, literary, animal cruelty prevention, or charity).
2. Mission Statement:
To start a non-profit organization, you must specifically describe the purpose of the nonprofit; this statement, called the Mission Statement, describes the overall purpose of the organization. This needs to be specific and clear
The mission statement should be refined so that all key stakeholders have a complete understanding of the organization’s goals. It addresses the question “Why does the organization exist?” If it is primarily to meet a public service or need in your community, then starting a nonprofit is a good idea. Consider at least these specific aspects for the mission statement:
- The primary benefits and services to clients
- The groups of who will benefit from those services
- The values that will guide how the nonprofit will operate.
3. Form a Board of Directors:
Each state has regulations that determine the size of the board. There are usually three members, but the optimum number of people who sit on the board should be determined by the needs of the organization. Depending on what your organization’s mission is, you should decide what skills and qualities you will require of the individuals on your board.
4. File Articles of Incorporation:
Articles of Incorporation are official statements of creation of an organization filed with the appropriate state agency. They are necessary to protect both board and staff from legal liabilities, making the corporation the holder of debts and liabilities, not the individuals who work for the organization.
[Note: If you’re planning to file as a 501c3 (for one of those specific purposes we mentioned earlier, it’s important to include specific 501c3 information in your Articles of Incorporation.)]
5. Draft Nonprofit Bylaws:
Bylaws are simply the “rules” of how the organization operates. Bylaws should be drafted with the help of an attorney and approved by the board early in the organization’s development. While this is an internal document, it’s very important that you have these rules in place right away.
6. Develop a Budget:
A budget is often a challenging task for a non-profit organization. A budget is the financial plan of operation. New organizations may start the budgeting process by looking at potential income to figure out how much money they have to spend.
7. Keep Records:
Legally, you must save all Board documents including financial statements. You should save all important corporate documents, such as board meeting minutes, bylaws, Articles of Incorporation, financial reports, and other official records. You may find it easiest to keep all of your documents in a central location, typically in the form of a corporate kit.
8. Create an Accounting System:
It is better to have an accountant on your board, but if that is not possible, it is best to work with an accountant familiar with non-profit organizations. Non-profit groups are accountable to the public, their funders, and government granting bodies.
9. Apply for a Federal Employer Identification Number (FEIN):
Whether the non-profit has employees or not, non-profits are required to obtain a federal Employer Identification Number (EIN). This number is used to identify the organization when tax documents are filed and is used like an individual’s Social Security Number.
10. File for State and Local Tax Exemption:
You may apply for exemption from income, sales, and property taxes. Learn more about obtaining tax assistance.
11. Fulfill Charitable Solicitation Law Requirements:
If your organization’s plans include fund-raising, be aware that many states and few local jurisdictions regulate organizations that solicit funds within that state. Usually, you would need to obtain a permit or license and file an annual report and financial statement.
12. Apply For a Nonprofit Mailing Permit:
The federal government allows non-profits to have reduced postage rates on bulk mailings. This is one of the benefits to incorporating as a non-profit.