A question I get asked quite often is:
Where do I even begin with starting a nonprofit organization?
While my expertise is accounting and compliance for nonprofit organizations after they are operating, I do have some experience with getting started too.
These are the general steps that I’ve found are typically effective for getting started or at least get you pointed in the right direction. Now, I am skipping one key point which is the vision for the organization. The reason I skip this is because most people who plan to start a nonprofit have a strong vision, but just need to the steps to put that vision into action.
1)Find a group of people with a similar mindset. This will help tremendously with setting up a board of directors. Most states and the IRS are going to require at least 3 individuals who are not related by blood or marriage to form the board of directors.
2) Incorporation: I’ve found it best to get incorporated in the state where the organization will be operating primarily. This does not mean that the organization cannot ever operate in another state, but the organization can only be incorporated in one state. Once the organization branches out to other states, that opens up a whole new set of compliance issues that I will discuss in a later topic.
Most nonprofit organizations need to be incorporated as a nonprofit C Corporation. You can find more information by reviewing the Secretary of the State’s website for most states.
3) Once the articles of incorporation are approved by the state, the corporation will need an EIN. The reason I suggest waiting until the organization is incorporated, is that you will need the approved name for the EIN. Any of the board members can apply for an EIN by visiting the IRS’s site: HERE. The person applying will need to submit their social security number through the IRS’s site.
4) Bylaws: The board of directors will need to agree on a set of Bylaws for the nonprofit organization. This will be the set of rules that the organization will refer to in all matters. One key point to include in the bylaws is a conflict of interest statement. It is fairly easy to find a template for Bylaws by performing a search online.
5) Budget: After the organization is incorporated, has an EIN, board of directors in place, and a strong set of bylaws, the board needs to discuss the budget for the organization. Many organizations get started with funds from the founding members and that is perfectly acceptable.
It is key to determine the organization’s budget prior to applying for 501(c)(3) status with the IRS since that will assist with determining which version of the Form 1023 that will be filed.
6) Form 1023 OR Form 1023-EZ: Now it’s time to apply with the IRS. I wrote a term paper for my Final in my Nonprofit Management class a couple of years ago. In that paper, I discuss the pros and cons of the forms as well as some history. I will include a copy HERE for review if you’d like more information on that topic or guidance determining which Form is appropriate for the organization’s specific situation.
These are the just the basic steps. If you have additional questions, I will assist as much as I can but my expertise is limited in this area. There are several professional companies that can help with each step and provide additional guidance customized for each specific organization.
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