How to Start a Charity
If you’re passionate about a particular social cause, or if you simply want to serve your community in a tangible way, perhaps you’ve considered charity work. Charity and nonprofit organizations provide an outlet to grow and share individual passions, but they also serve as invaluable resources for local and global populations.
While starting a charitable business requires hard work and determination, seeing the process through from start to finish could result in incredible benefits. No matter what cause is most important to you, there is a true need for reputable charities around the world.
In this guide, we outline the key steps to starting a charity from the ground up.
What Is a Charity?
A charity is any type of organized foundation or group that is established for the purpose of improving social well-being through philanthropic efforts.
Most public charities have one primary area of focus on which to direct funding, support and services. Charities exist in many different cultures, industries and communities.
Is a Charity Different than a Nonprofit Organization?
Many people want to know the difference between a charity and a nonprofit. Both structures have rules in place that determine how incoming funds and donations are managed. While charities focus on improving quality of life through philanthropy, nonprofits can be formed for many other purposes unrelated to service efforts.
Tax-Exempt Classifications for Charities
If you’ve ever volunteered with a charitable organization, you know that the work can include human rights advocacy, medical assistance, animal welfare or environmental protection.
For the purposes of starting a charity, however, you’ll want to make sure you have some insight into how these organizations are categorized from legal, financial and tax perspectives.
Most of the time, these groupings and definitions are set by the Internal Revenue Service (IRS):
- 501(c)(3): This IRS classification is one of the most common, as it describes most charitable organizations. This includes organizations that are primarily focused on religious, scientific, literary, public safety and child welfare work.
- 501(c)(4): In this grouping, you’ll find civic leagues, social welfare groups, local employee organizations and more. Often, these groups exist to support those who have experienced unanticipated hardship.
Although this is not an exclusive list, many charitable groups fall under one of the two categories above. Other definitions and statuses, including those for veterans, workers, union members and minorities, all receive special distinction according to section 501(c) of the IRS code. Maintaining tax-exempt status in any of these organizations requires updated documentation.
8 Steps to Starting Your Charity
Now that we’ve covered the basics on what a charity does and how it’s defined for taxation purposes, we’re ready to dive into the process of actually starting your organization. As you start, make sure to research the rules and guidelines that could be specific to your state or local community.
Having a good awareness of these municipal requirements before you start is a good way to make sure that you’re in compliance with all applicable laws.
1. Identify a Tangible Need in Your Target Location
Every good idea for a charity or business should start with one simple premise–research! What are some of the most pressing needs that members of your community face on a daily basis? How could a newly-formed charity assist in bringing relief or improvement in this area?
It’s also worth noting that you should make sure to focus on the area in which you plan to actively live or work. You may have a passion for helping build orphanages in third-world nations, but if you can’t realistically travel or live in those places, it could make your efforts much harder.
Decide how you can have an impact in a certain environment before you start, and then spend as much time as possible getting to know the people, local economy, physical needs and resources in that location.
2. Put Your Mission and Purpose in Writing
Depending on your ideas for funding and stakeholder involvement, you may not need a formal business plan. However, it’s always a good idea to put your concept into writing or document it in an official document.
Not only will this provide clarity as you personally consider different options, but it will also improve communication with members of the community. An official document can also alleviate confusion when it’s time to collect donations, raise awareness, or secure a tax-exempt status or special license.
To create your mission statement, you’ll want to determine:
- What your exact cause is
- The people and groups that you plan to serve
- The type of projects you’ll conduct
- Who will be involved in these assignments
- How to secure the money to fund these efforts
3. File for Incorporation
The rules for incorporation differ by state, so it’s important to check with your local government offices for next steps. You can use a service like GrantSpace to learn more about specific startup requirements.
In general, articles of incorporation for a nonprofit or charity could include:
- Proof of your charity or organization’s official name
- Administrative and other filing fees (usually due before any status is awarded)
- Evidence of local publications that announce your organization
- A list of your charity’s official bylaws
Incorporation allows you to formalize your charitable efforts and to receive recognition by your state as an official group. Another benefit is that it offers credibility to the work you do, which could legitimize your organization in the eyes of local officials and community members.
4. Apply for Tax-Exempt Status
Federal tax exemptions are helpful for organizations, such as public charities, that do not operate in order to generate profits. Since you are not a business entity, you may be eligible for federal benefits that are awarded to organizations like churches, educational associations, medical providers, and other groups that support community health and welfare.
While an accountant can help you with this step, some of the necessary documents to file with the IRS include form 1023 or 1023-EZ, form SS-4 to establish your identification number and form 5768. The IRS offers resources and instructions for completing these documents if you’re entirely new to the process.
5. Designate Board Members
Having members of the board is not only helpful for guidance and support, but in many cases, it may be a required step to maintain your incorporation or financial standing. A formal board offers accountability and steers the direction of the charity when important decisions need to be made.
Even though it’s nice to consider friends and family members, appointees should be individuals who are supportive yet constructive. Consider people with important industry or life experience, which could increase your organization’s respectability.
For an even better outside perspective, you may also want to have representation from the areas in the community that you’re aiming to help,, such as childhood advocates or members of minority groups.
6. Maintain Compliance Regulations
Charitable organizations are governed by state regulations and most (if not all) of these requirements must be maintained on a regular basis. Whether this involves filing annual paperwork or renewing certain fees, it’s crucial that you remain aware of ongoing compliance measures.
Failure to stay up-to-date in your administrative processes could result in removal of important classifications or delays in the work you perform.
Although it may be frustrating, compliance standards prevent organizations from operating in ways that end up being harmful to the community or to individual causes.
7. Develop Fundraising Models
Even though you’re not operating a traditional business, starting a charity involves many expenses. These include everything from startup costs and filing fees to the money you need to actually provide resources to the community.
A formal fundraising plan should include consideration for options like:
- Grants (applications, letters, deadlines, etc.)
- Donation efforts
- Fundraising events
- Short- and long-term funding campaigns
- Membership fees
- Product sales (may be regulated by state laws)
Fundraising is particularly important if you plan to have any staff members, since you will need a way to properly compensate these individuals for their work. Most other financial needs will be divided among your administrative or operational costs, relevant legal fees, and the goods or services you provide as part of your mission.
8. Do the Work
Congratulations! With the logistics in place and the details sorted out, you can officially begin the work you intended to do all along. Whether this means rolling up your sleeves for a physical service project, or setting up opportunities to share your mission and advocacy, it’s time to launch.
Continued growth happens with committed action, so don’t be afraid to jump in.
Start Your Charity Today
No matter what type of organization you plan to start, one thing is certain—the world can always benefit from service-minded individuals with dreams of helping their communities. When you start a nonprofit or charity, there will be moments of uncertainty and challenges, but the potential rewards are significant.
We hope that this guide has helped you define your purpose and understand the next steps you can start taking today to improve or assist the lives of others through charitable work.