How to Start a Nonprofit Organization: Step-by-Step Guide for 2020
Starting a nonprofit organization is a great way to serve your community and make a positive impact. In fact, over 1.5 million new nonprofit organizations are registered by individuals and groups every year in hopes of making the world a better place.
But creating a nonprofit corporation is not always an easy task, especially if it’s your first time.
That’s why we’re sharing this simple, step-by-step guide for how to begin—from filing the right forms and getting incorporated to setting your nonprofit up for success.
Want to Start a Nonprofit? What You Need to Know
First, we commend your commitment to wanting to improve your community and help others. Establishing a nonprofit can certainly be a fulfilling, impactful endeavor, both for you and the communities you hope to serve.
Of course, creating a nonprofit also requires careful consideration and planning. To ensure your success, here are some important things to consider:
How a Nonprofit Makes Money
With a nonprofit, the organization’s profits are never distributed to the founders or individual members of the organization. Instead, any profit brought in is used to serve the people, animals, initiatives or communities of the group.
In this structure, the profits are put back into the group to cover operating expenses, philanthropic events, charity activities and similar expenses.
Advantages and Disadvantages of Nonprofit Organizations
Before starting, it’s worth considering the advantages and disadvantages of nonprofits. That way, you can make an informed decision as to whether founding one is the right move for you.
Advantages of Starting a Nonprofit:
- Establishing a nonprofit gives you the opportunity to collect funds and distribute them to less fortunate communities or other philanthropic initiatives
- Owning a nonprofit can be fulfilling and give you (and other members) a greater sense of purpose
- Charitable organizations that qualify under Internal Revenue Code 501(c)(3) are eligible for exemption from paying corporate income taxes
- They may be eligible for public and private grants
- Creditors and courts are allowed limited access to the assets of the nonprofit (limited liability)
- A nonprofit exists as its own legal entity and therefore hold its mission above the interests of individual founders/members (incorporation)
Disadvantages of Starting a Nonprofit:
- Founding a nonprofit takes money (and time), particularly when it comes to filing for incorporation and tax exemption
- As a nonprofit owner, you’re required to keep detailed records and submit annual filings to the IRS in order to keep your tax exempt status
- Getting a nonprofit off the ground can be stressful, as it requires generating enough funds to get started and takes time to get the word out to the community
- Nonprofits serve the public and are therefore open to public scrutiny, which may involve the public asking for state and federal tax records, reports on member salaries and details about the organization’s expenses
Do you want to start a nonprofit? Despite the hurdles, establishing a nonprofit can be extremely fulfilling and make a significant impact in the communities being served. Start making a difference with your own nonprofit or charity.
How to Start a Nonprofit: Complete Checklist
The most difficult part of establishing a nonprofit is simply taking that first step.
Once you’re committed to starting and growing your nonprofit, you’ll find that many things will begin falling into place. Just remember, making mistakes is part of the process and you can always reach out to others for help.
Follow the steps below and you’ll be well on your way to launching your own nonprofit.
1. Do Your Research
Before starting your nonprofit, you’ll want to have a clear concept in mind. This means determining who you’ll serve and what your nonprofit is going to provide.
To begin this process, research other charities. Look to organizations that are doing the work you hope to do. Do you see missed opportunities where your nonprofit could fill a gap? How will you structure your nonprofit similarly or differently?
Doing a bit of research will help you hone in on your main concept and gain some ideas on how to structure your organization.
2. Choose a Name
Choosing a name for your nonprofit can be fun but also difficult. You may struggle to think of a name or, if you do have one in mind, you might find that a similarly named association already exists.
Google some not-for-profit organizations to gain some ideas. Also, confirm that your preferred name isn’t already being used by an existing institution or business. This will make it easier to establish your organization and choose a domain name for your website.
Once you’ve chosen a name, look to domain registrars like Namecheap or GoDaddy to purchase the domain name for your organization. Later, you can set up your website with this domain and then you’ll really be in business.
3. Establish Your Mission Statement
Your charity’s mission statement defines what your organization does, who it serves and how it provides services to your chosen community.
A mission statement is necessary if you want to fundraise, apply for grants or otherwise market your nonprofit. A mission statement can be a simple sentence or an entire paragraph. Either way, the goal is to give the public and potential donors an idea of what your organization does.
For example, here is the mission statement for Teach for America—a foundation that combats inequality in the education system:
“Teach for America is a diverse network of leaders working to confront educational inequity through teaching and at every sector of society to create a country free from this injustice … One day, all children in this nation will have the opportunity to attain an excellent education.”
4. File Articles of Incorporation and State Forms
Now that you have a name for your nonprofit and a solid foundation of what it is going to provide, it’s time to begin the process of incorporation.
State laws dictate their own requirements for the formation of nonprofits. For that reason, you should make sure to connect with your state’s association of nonprofits for specific requirements.
Below are the basic steps for incorporating nonprofits. Again, regulations vary from state to state, so these are by no means comprehensive.
- Register the intended name of your nonprofit corporation, and make sure that it hasn’t already been taken by an existing entity.
- File articles of incorporation with your state. Depending on your state, you may have to provide additional information, such as proof of corporate name, filing fees or a certificate of disclosure.
- Some states may also require nonprofits to publish articles of incorporation in a local newspaper and provide further proof with the state’s agency.
5. Write Nonprofit Bylaws
Your nonprofit’s bylaws are essentially your organization’s guidebook. It outlines how your institution will be run, how you organize meetings, what responsibilities board members have, how funds will be allocated and more. They serve as your organization’s manual and will help keep things running smoothly.
Your bylaws may outline:
- The organization’s purpose
- Membership structure
- Meeting procedures
- Staff compensation
- Record keeping
- Handling of conflicts of interest
- Board of directors procedures
Note that there are a few things you’ll need to comply with depending on your state’s laws. Be sure to check with your secretary of state to learn your state’s laws regarding nonprofits.
6. File for Federal 501(c)(3) Tax Exemption
The IRS requires nonprofits to file Form 1023 in order to obtain tax-exempt status. At the same time, some states require nonprofits to file for a state-level exemption. Most often, this is the 501(c)(3) tax-exempt status.
This tax exemption provides a range of benefits, including but not limited to:
- Federal and state tax-exempt status
- Increased credibility in the public eye
- Ability to collect tax-deductible donations
- Exemption from certain property taxes
This is one the most important steps in founding nonprofits, so be sure to seek assistance from a trusted tax professional if you need help.
7. Market and Grow Your Nonprofit
Once officially established, your nonprofit can begin collecting donations, distributing funds and getting to work. Every nonprofit organization is different, so how you market your nonprofit is up to you.
Many nonprofits start an official Facebook page and host local events to raise funds. Others launch a blog to drum up traffic and attract volunteers. The opportunities are endless when it comes to scaling your nonprofit to new heights.
Of course, growth is made easier when you are able to keep your organization’s finances in check. Consider utilizing accounting software for nonprofits to manage donations and expenses with ease.
8. Maintain Compliance
Remember that a 501(c) organization must satisfy certain conditions in order to maintain tax-exempt status. This means following state and IRS requirements regarding compliance. This may require consulting with professionals such as lawyers or tax advisers in order to keep your status.
Starting a nonprofit organization can be fulfilling and fun. With the rights steps, you can establish a solid foundation for your organization and begin growing right away. Hopefully this guide has been helpful in getting you started. It’s always worth trying to make the world a better place for all.