How to Start a Nonprofit Organization

From LoveToKnow Charity

Are you interested in learning how to start a nonprofit organization? You'll need to first determine the requirements specific to the location where you plan to base your organization. Once you know how to comply with the applicable local requirements, the next thing you should do is learn about the IRS requirements for filing for tax exempt status. Even though you'll want to establish your charity locally at first, it's best to be certain that you have set up your entity in a manner that will make it relatively easy to complete the process of earning tax-exempt status at a federal level as well.

Nonprofit Organizations

Information About How to Start a Nonprofit Organization

The process of beginning a nonprofit organization is very similar to that of launching a new business. Assuming that your ultimate goal is to file with the Internal Revenue Service for tax-exempt status, you will need to legally establish your organization as a non-profit corporation, a trust, or an association.

State Requirements

You'll need to research the requirements of the state where you plan to open your charitable organization to find out what paperwork and filing fees you will need to complete in order to form the legal entity. Typically, the office of your Secretary of State is the best resource for that information. You can find a list of SOS offices throughout the U.S. at CoordinatedLegal.com.

Typically, you'll need to follow the same paperwork process involved with creating a for-profit corporation. Tasks you are likely to be required to complete include drafting an articles of incorporation document, creating bylaws for the entity, filing mandatory paperwork with the court system, selecting directors, and other related tasks. In some states, you'll also be required to complete a name reservation form. There are filing fees – which vary by location -- associated with each step, so you'll need to plan for making those payments in your budget.

Additional Local Regulations

In addition to complying with state-specific requirements, you will need to check with the license commissioner's office in the city or county jurisdiction where you are establishing the organization to see what types of licensure requirements apply to your venture.

Should You Outsource?

If you find the idea of navigating the initial setup process to be intimidating, you may want to consider hiring an attorney to handle setting up your non-profit entity. If you decide to outsource this function, be sure to hire someone who has experience working with charitable organizations in your state. Before selecting a lawyer, ask for – and check -- references of organizations similar to yours so you have a realistic idea of what to expect in terms of service, responsiveness, and results. Also be certain that you are clear of exactly what fees will be charged and what they will cover.

Federal Requirements for Tax Exempt Status

Prior to requesting IRS recognition, your organization must be compliant with all state and local regulations. Additionally, the entity must have an employer identification number (EIN) before filing your request for recognition. You can request your EIN online.

In addition to being organized as an association, trust, or non-profit corporation, in order to be approved for an exemption from federal income tax, an entity must exist for a specific exempt purpose. The most common types of exempt organizations are those that exist for charitable or social welfare purposes, as well as trade associations. Other entities that may qualify include:

Labor organizations
Agriculture/horticulture organizations
Clubs that are social in nature
Employee associations
Fraternal societies
Organizations for veterans
Political organizations
Additional miscellaneous entities

Everything else you need to know about how to start a nonprofit organization that is exempt from federal taxes can be found in Internal Revenue Service (IRS) publication 557. The publication contains details about the application and approval process, how to appeal decisions that you do not agree with, and details about all necessary disclosures.

Need to Raise Money for Your Nonprofit?

In addition to taking care of making sure that your organization is properly set up, you'll also need to learn how to raise money if you plan to build a successful charitable organization. If you're ready to learn more about fundraising, visit these informative slideshows.