The decision to launch a nonprofit organization is an exciting step for an entrepreneur.
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But taking your organization from the drawing board to your first board meeting takes more than a good idea. It requires knowledge, discipline, and a lot of hard work. Here's how to get started...
Right off the bat, you need to understand that nonprofits are subject to specific regulations governing their operation. Much of the startup process involves laying the groundwork to bring the organization into compliance and gain necessary approvals from state and federal government.
Define Your Mission
Your organization's stated mission is the initial litmus test for qualification as a nonprofit entity. A legitimate nonprofit must be "organized and operate for some religious, educational, charitable, scientific, literary, testing for public safety, fostering of national or international amateur sports, or prevention of cruelty to animals or children". Additionally, your mission should be comprehensive enough to encompass the complete scope of your activities, but specific enough to differentiate yourself from other organizations.
Recruit a Nonprofit Board
Like for-profit corporations, incorporated nonprofits are governed by a board of directors. Carefully consider who you will invite to sit on your board since the initial board members will be instrumental in your organization's development and fundraising efforts. On the other hand, don't procrastinate in selecting board members, either, since your incorporation documents will require individual board members' names and addresses.
You don't need a lawyer to incorporate a nonprofit organization - but it helps. The incorporation process requires the completion of several forms and documents. The first step is to draft articles of incorporation and bylaws that have been approved by your board. With these documents you can then file for incorporation with the state in which the organization resides. But here's the catch . . . An experienced attorney knows the words and phrases that are most likely to gain swift approval. You don't. If you go it alone, there is a good chance the incorporation process will drag on for months without resolution. At a minimum, find an attorney or experienced nonprofit professional who is willing to examine your documents for any red flags.
Federal & State Tax Exemption
Tax-exempt status is one of the perks of nonprofit incorporation. But this exemption is not automatic. You will need to apply for 501(c)(3) tax-exempt status with both the IRS and the appropriate state agency. Although it usually only involves board approval and filing a couple of forms, it's important to make sure you do this early in the process. Otherwise, you may be forced to waste very limited resources on taxes you didn't need to pay.
There are several other items you should also consider during the startup phase including insurance coverage, property tax exemption (if the nonprofit owns real estate), a federal employed ID number, and a bulk mail permit. Fortunately, many of these tasks can be accomplished after your organization is up and running. Just be aware of the fact that as a nonprofit you may be subject to different regulations than a typical business and don't hesitate to seek professional advice when you find yourself in unfamiliar territory.