Starting a nonprofit organization can make a big impact addressing the needs of your community. The process of establishing a nonprofit is much like incorporating a business, but with an added layer of legal filings to obtain tax-exempt status.
Following all regulatory procedures and avoiding common mistakes will save you time and money. Here’s a basic guide for how to start a nonprofit in the United States.
Craft Your Mission Statement
Once you and your partners have decided to start a not-for-profit organization, the first step will be to put your vision into writing. Idealist, a nonprofit networking organization, recommends drafting a mission statement that provides an overview of the work you will do and the reasons the work is important.
Your mission statement should be concise and memorable, advises Nonprofit Hub. Avoid using vague language and jargon.
Let’s say you’re starting a microfinance organization that provides loans to people in developing countries. You might want your mission statement to spell out all that you provide:
“We’re an economic and community development organization for entrepreneurs in developing countries. Our work is about building stronger communities, neighborhoods, and economies, and we believe that microfinance can provide those opportunities. Our mission is to cultivate vibrant communities by connecting entrepreneurs with the credit, investment opportunities, and financial and banking services they need to make a living and a life.”
While detailed, this mission statement is too wordy, unclear and unmemorable. Instead, zero in on the emotional impact of the solution you provide:
“We’re a nonprofit connecting entrepreneurs in developing countries to capital in order to eradicate poverty.”
Write a Business Plan
Much like if you were starting a small business, your nonprofit will need a business plan. The National Council of Nonprofits advises you take the time to “define and quantify the problem that your nonprofit would address in the community.” There is a lot of competition for donations, and potential donors need to understand the “demand” and “market” for the services your organization will provide. The more concrete specifics you can provide about the necessity for your nonprofit, the better chance you will have at obtaining foundation grants and individual donations.
Again, just like you would when starting a new business, do extensive research to see if other organizations might already be doing the work you want to do. It only makes sense to go through the hard work of starting a nonprofit if there is a clear need for your organization. Check out our previous post on the dos and don’ts of writing a business plan for more guidance. The Nonprofits Assistance Fund also offers a sample nonprofit business plan template.
Incorporate in Your State
If you’ve decided to move forward with starting a nonprofit, the next step will be to incorporate the organization.
- Choose a name. Your name cannot be used by another registered organization and must follow state laws. See our blog post on avoiding trademark infringement for help.
- Register your name. The National Council of Nonprofits provides a list of state websites to start the registration process. You’ll most likely register with your Secretary of State’s office.
- File Articles of Incorporation. Then, you will file Articles of Incorporation with the state, detailing the main rules on how you will govern your nonprofit. Depending on your state, you may also have to file:
- Certificate of Disclosure
- Proof of Corporate Name
- Filing fees
Apply for Tax-exempt Status
Finally, you will need to file paperwork with the IRS in order to receive tax-exempt status for your nonprofit. Once you are approved, you may also be required by your local and state governments to submit additional paperwork before you can operate as a tax-exempt organization. Consult a local attorney who specializes in nonprofits to ensure you are in compliance with all regulations.
Starting a nonprofit can make a huge impact, but it’s a lot of work making sure you do everything right. Contact an UpCounsel business formation attorney for help with a business plan and local, state and federal regulatory filings so you can focus on what matters.