How to Set Up a 501c: Everything You Need to Know
Decide which type of nonprofit you wish to start. It's best if you choose an issue you care about or one that's a matter of public interest.3 min read
If you want to know how to set up a 501c nonprofit organization, you'll need to follow these steps:
- Choose a name for your nonprofit.
- Formulate a mission statement.
- Hire an attorney and CPA.
- Choose a legal structure.
- File formation documents.
- Obtain an Employer Identification Number (EIN).
- Develop a budget and recordkeeping system.
- Apply for tax-exempt status.
- Draft bylaws.
- Form a board of directors.
- Comply with charitable requirements.
First Steps to Start a 501(c) Nonprofit
Decide which type of nonprofit you wish to start. It's best if you choose an issue you care about or one that's a matter of public interest. Next, select a name for your nonprofit.
Create your mission statement, which should encompass your nonprofit's values, purpose, and services. Briefly, your mission statement should describe why it's different and cover the following:
- Your organization's name
- What your organization does
- Who it services
- Where it provides services
An attorney will help you with your formation documents and bylaws. You should hire someone with experience in the nonprofit arena. Hiring a professional saves you time and money in the long run.
Choose a legal structure for your business. Most nonprofits are corporations, but you can also operate as an LLC, trust, or unincorporated nonprofit.
File your Articles of Incorporation (or equivalent formation documents) with the state. Each state has its own requirements for incorporation. Consult with your attorney or contact the Secretary of State office to find out what your specific requirements are.
Apply for an EIN, also known as a federal employer identification number. You'll obtain this, free of charge, from the IRS. The number identifies your business to the government.
Hire a certified public accountant, or CPA, preferably one with nonprofit experience. Choose a CPA firm that matches your nonprofit's size. For instance, a small nonprofit will be fine with an individual CPA or small CPA firm. Larger nonprofits should select bigger firms with good reputations.
Create a budget, which is often one of the more challenging tasks. Work with your accountant, and consider potential income as well as how much money you have to spend.
Recordkeeping and Important Documents
Develop a recordkeeping system, which includes all financial statements and board documents. You must also keep the following:
- Meeting minutes
- Financial reports
- Formation documents
- Other official records
If you're not sure of the specific records you're legally obligated to keep, contact the appropriate state agency.
With your CPA, develop a suitable accounting system. As a nonprofit, you're accountable to the following:
- Your funders or contributors
- The public
- Government granting bodies
You need a system of checks and balances to maintain proper accounting practices. The system should meet current and anticipated future needs.
Apply for tax-exempt status, in accordance with municipal, local, and state laws. Contact the county or state Department of Revenue to find out how to apply for tax exemption.
Carefully consider how to form a board of directors. Each state has requirements for a minimum board size. Usually, a board is made up of anywhere from three to seven individuals, but consider your nonprofit's needs when deciding on the optimum number.
Apply for a mailing permit for nonprofits to receive reduced postage pricing on bulk mailings.
Other Compliance Guidelines
Fulfill legal requirements for charitable solicitation, which may be regulated by your city, county, or state. This may involve obtaining necessary licenses or permits and filing annual reports and financial statements.
You'll have compliance guidelines to meet, which may include a solicitations registration with the state (normally administered by the Attorney General's office), corporate tax exemption with the state, and sales tax exemption, which allows you to purchase items for your nonprofit without paying sales tax on them.
Creating a nonprofit organization takes a lot of time and effort. Hiring the right tax and legal professionals can make the task easier. Because many nonprofit founders are interested in serving the greater good, they're often willing to do whatever it takes to help the people and communities they're interested in.
If you need help with how to set up a 501c, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.