How To Start A Nonprofit

My guide on how to start a nonprofit will help you understand what’s needed in a nonprofit organization and how charitable organizations will operate with a tax exempt status from the Internal Revenue Service. Before we get into this though you should know that you can work with a professional at Northwest Registered Agent who can do all this work for you.

Name Your Nonprofit Organization

It’s important that you really think through your mission statement and your business plan because it will be tied to your nonprofit organization name. It’s important that you think about what you want your. name to be which is tied to what domain names are available too. It’s not just about what you want your legal structure and new nonprofit name to be. You will need to do a Tax Exempt Organization Search on the IRS site here.

Once you’ve done this, you’ll be ahead of most nonprofits by thinking first about what the name should be and if it’s available or not. Once you determine the name is available from the local government requirements and you’ve looked at the IRS site, you will need to go over to GoDaddy and make sure you can have a successful nonprofit name by locking in the digital name too. This has no impact on whether you get a tax exemption but it does help as your nonprofit corporation by having the official ‘.com’ if you can get it.

Choose Your Registered Agent

Once you’ve decided on your name you will need to have a registered agent or registered agent service help you lock in the legal requirements for this. I would highly recommend just going with Northwest Registered Agent since this is their business and doing this yourself or acting as your own registered agent isn’t the wisest decision.

A registered agent is a company or individual who is responsible for receiving legal documents and tax forms on behalf of your nonprofit. The registered agent will also be the contact person for the state in which your nonprofit is formed.

The main thing to consider when choosing a registered agent is whether they are available during business hours and if they have a physical address in the state of your nonprofit corporation.

Select Your Board Members & Officers

As you think about the long term vision of your nonprofit corporation you will need to have the right people in place. Typically these are individuals that will help you raise funds, run the nonprofit and offer help around organizational structure. There are rules around board meetings, fiscal sponsor options and a number of different topics but choosing who is on your board is absolutely critical.

Your board members are going to be on public record in making decisions and typically individuals in the community that want to can join board meetings in some capacity. COVID really changed that but you do want to have a public support test by seeing who will support you in who is on the board.

I’d recommend thinking about having someone that can attract donors and act as a fundraising manager or hire someone that reports up to the board member responsible for that.

I’d also really think hard about the organization’s mission and you have multiple members think through what this would look like or if it’s based off of other nonprofits. Either way, get board members that are diversified in their skills and backgrounds. You will want to find someone that is a legal professional too in case something happens where you’ll need guidance on legal issues.

I also recommend really thinking about finding people with financial resources (which could be members of the community) or someone that can be fully responsible for soliciting donations. Fiscal sponsorship is a key piece to the lifeblood of any tax exempt status and a nonprofit corporation. Without having someone doing online fundraising, recreational clubs and thinking about how to weave in the nonprofit’s mission into raising funds – you’re going to have big challenges with survival.

Adopt Bylaws & Conflict of Interest Policy

It’s also just as important to put together a conflict of interest policy. If you have members of the community on the board making decisions that are skewed because it will have a better outcome for them you have an issue. If you think about this as a nonprofit school board – would you want parents of the students on the board making decisions for the entire community that could have a massive impact one way or another when budget decisions are being made?

A conflict of interest policy is there to make sure private interests are not taking advantage of the demographic or population data of your community that could cause bigger issues long term. Many nonprofit startups survive because they start off on the right foot by putting together a conflict of interest policy that makes sense for the community not the individual.

Nonprofit Bylaws are also critical. They establish how the nonprofit is governed and typically go hand in hand with the conflict of interest policy.

The bylaws should answer a number of key questions such as:

How often will board meetings be held?

Who can vote on board decisions?

What is the process for amending the bylaws?

How are board members elected?

What are the roles and responsibilities of board members?

Adopting bylaws is one of the first things that should be done after the articles of incorporation are filed. Bylaws provide a roadmap for how the nonprofit will be run and help to avoid conflict among board members.

File the Articles of Incorporation

Once you’ve been able to get a nonprofit startup rolling with the steps above you will need to file articles of incorporation. You won’t necessarily need to have named all the officers (including the Chief Financial Officer) but you will need to have the Executive Director and anyone else that’s required for the Internal Revenue Code.

I would recommend going back to Northwest Registered Agent and have them help you with this process vs. doing it yourself. If you do want to do this on your own the steps are:

1) Go to the secretary of state’s website

2) Search for business entities

3) Click on ‘file now’ next to the option for nonprofit corporation

4) Complete the form that’s provided – this will include information such as the name and address of the nonprofit, the names of the directors, and the purpose of the nonprofit.

5) Pay the filing fee

6) Receive the articles of incorporation from the state

Once you’ve done all this you can move onto the next step of getting into what’s required for your tax exemption tracking.

Get an Employer Identification Number

This is the social security number for your nonprofit. You will need to go to the IRS website here and file for an EIN. This process doesn’t take long but it is required for a Federal Tax Exemption that will also help with getting an IRS determination letter. This process isn’t complicated but the IRS website is important for you to make sure your nonprofit’s services are going to be tracked the right way. Whether you’re a California nonprofit or a for profit business you will need an EIN for income taxes and every corporate entity is required to have one.

Apply for 501c3 Status

Once you’ve done all of this work, you will need to file all the forms on your own for 501c3 status. You can get help from a professional service to help you with this but as nonprofit corporations go – you will need this status. If you’re setting up a separate organization you can get away with not doing this but if your nonprofit organization exists in the US you should do this.

The typical steps of setting up a 501c3 status are:

1) File the 1023 form with the IRS

2) Include your articles of incorporation, bylaws, and conflict of interest policy

3) Include a detailed budget for your first three years of operation

4) Include a narrative explaining your programs and how they benefit the public

5) Wait 6-8 weeks

From here you should get a response but if not you will need to contact them and figure out what’s going on.

Setup a Nonprofit Bank Account

Once you’ve done all this if you’re planning on having charitable solicitation or collecting funds for your nonprofit you will need a nonprofit bank account. I always recommend using Lili Banking because it’s an online bank that’s really simple to use. Go get one setup today.

FAQs

What is a Nonprofit Organization?

A nonprofit organization is a form of business organization which operates without the primary objective of gaining profits. Non profit organizations work in the public interest and are generally deemed exempt by IRS-based tax laws. Most notably public charity is the largest kind of 501c(3) with more than a million registered throughout the USA. Nonprofit organizations whose status does not fall within 501(c)3 include: 501c)(4) Social Services Organizations, Labor and Agriculture Organizations and 501c)(6) 501c(7).

Why should I start a non-profit?

It might seem strange at first, but it should always be a question. It is a business, and you should be clear about the reason that you are starting it.

There are many reasons people might want to start a nonprofit:

  • To make a difference in their community or the world
  • To help people in need
  • To solve a problem they are passionate about
  • To continue the work of an existing team or person that you believe in

How do nonprofits owners make money?

A few nonprofit organizations are provided with donating material, which can be sold to others for the profit. Nonprofits can also earn money through services offered to their customers. In the case of an educational nonprofit, e.g. These courses may cost money.

Is it hard to start a nonprofit?

Creating nonprofits is harder than many people think. Getting an exemption from the IRS involves numerous steps. You will need to follow all these steps and I would highly recommend just using a professional service to help.

Can you start a nonprofit alone?

It depends on the state. In some states, you can start a nonprofit by yourself. However, in others, you will need to have a board of directors. Check the rules of each state before getting started.