How to Create a Nonprofit: Everything You Need to Know
Ascertain how to create a nonprofit by first understanding what exactly a nonprofit is. New nonprofits are created every day. These nonprofits give back to the community, help those in need, and advance the interests of various groups. There are several key steps that need to be taken when starting a nonprofit.
How to Start a Nonprofit
Before attempting to start a nonprofit, it is usually a good idea to consult with an accountant or business attorney that has experience working with nonprofit organizations. There are also state laws that must be followed. It is important to make sure that your organization is legally compliant as well as financially viable. Starting and growing a nonprofit takes a lot of effort and determination.
Do Your Homework
Research and analyze the law, your organization’s goals and financial prospects, and whether other options would be better. Get support from any organizations that help nonprofits in your community. Make sure your organization will have a reliable revenue stream. Remember that you cannot attract investors looking to earn a profit; instead, you need to gain financing from people that believe in the mission of the nonprofit. Also remember that if your personal goal is to earn a high salary, a nonprofit may not be the best choice.
Nonprofits must be organized according to state laws and should apply for tax exempt status under Section 501(c)(3) of the IRS Code. They should be structured in a way that they can best support the community.
Choose a Name
A nonprofit must be named something new; existing names are protected by trademark. A state’s Secretary of State or Corporation Office can tell you if a name is available. The name of a nonprofit should be carefully chosen to reflect well on the organization.
Build a Solid Foundation
After coming up with a good name, a nonprofit needs to have a solid business plan and mission statement. A business plan sets out the financial expectations of an organization. It outlines where funding will come from and what the expenses will be. A mission statement explains the purpose of a nonprofit, its goals and purposes, and how it plans on meeting those goals and fulfilling those purposes.
A Board of Directors also needs to be chosen. Every nonprofit must have an autonomous Board of Directors that makes major decisions for the nonprofit. Board members should be carefully chosen. They should understand the mission and business plan of the nonprofit, and keep up with what the nonprofit is doing.
Incorporate Your Nonprofit
It is usually a good decision to incorporate a nonprofit. Incorporation gives an organization more credibility and insulates the Board members from persona liability. An organization can be incorporated by filing Articles of Incorporation with the state government, in most states this filing goes to the Secretary of State. Corporations also need to have bylaws.
There are rules for nonprofits under IRS Code 501(c)(3) that must be met before a nonprofit can gain tax exempt status. There are also state rules that must be followed in order to organize as a nonprofit.
There are annual reporting requirements for nonprofits. Form 990 must be filed with the IRS. The precise information needed on the form depends on total gross receipts. But, this form serves as a general financial disclosure and must state the general management structure of the nonprofit. Form 990s are made publicly available. Annual reporting requirements may also exist under state law.
Additional Steps to Starting a Nonprofit
A marketing plan can be a good way to attract donors. Having an online presence and making an effort to outreach to the community can gain funding and attract volunteers.
Check Your State's Corporations Division Website
Many state websites have information about starting a nonprofit. There could be other resources available in your state. Information can also be found on the IRS website.
Apply for Your IRS Tax Exemption
The main reason to organize as a nonprofit is to gain tax exempt status from the IRS. This requires the filing of a form under Section 501(c)(3). Smaller nonprofits can file a streamlined version, Form 1023-EZ. Filing for tax exempt status can be done by filling out forms online on the IRS website. Gaining tax exempt status for state taxes requires separately going through the steps outlined by your state’s law.
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