A Step-by-Step Guide to Establishing Your Nonprofit

By FormSwift Editorial Team

July 3, 2018 

Here is our step-by-step guide for establishing your nonprofit.

1. Vision statement: what difference do you envision making in the world? How will your nonprofit achieve that vision? This statement should be:
   1. Brief (a few sentences)
   2. Include where will the nonprofit will be located and do its work.
   3. Specific examples of the work you will do.
2. Mission statement: how will you direct your efforts?
   1. This statement should be more direct and specific than the vision statement.
      1. For example, “We will accomplish 'x' by offering 'y' services to 'z' communities.”

People

• Board of Directors: nonprofits need a board of directors that believe in and will guide the vision and mission of the organization.
  • Choose people who are experienced and have a track record of success in relevant fields.
  • Determine how big your board will be, what roles you need fulfilled, etc.
    • Common positions include President, Vice-president, Treasurer, Secretary, Executive Director, Volunteer Director, PR Coordinator, Fundraising Director, members of the Executive Committee, other officer positions, etc.
  • Do your research: research and consult similar nonprofits in your area and analyze the composition of their board.
    • Before you choose board members, make sure you discuss the specifics of the organization, the proposed role, operational details, funding information, tax status, adhering to the federal tax code, etc.
    • You should also discuss specific goals and benchmarks for the nonprofit.

Business plan

Just like any other business, your nonprofit needs a business plan. It should include:

• Mission statement
• Marketing plan
• Budget and financial projections
• Operation plan
• List of employees, etc.

*See our business plan page for a more in-depth description of these details.

Articles of incorporation

Articles of incorporation protect the board and staff from any potential legal liabilities.

1. Start by incorporating at the state level, regardless of the type of nonprofit you wish to establish.
   1. Check your Secretary of State’s website for procedural information
2. From there, draft and file articles of incorporation with the office of the Secretary of State.
   1. Articles include: name of organization, purpose, address, names, titles, and addresses of Board of Directors, and what will happen to the organization’s assets if the organization is dissolved.
   2. Hire a corporate attorney to review the documents and ensure everything is legal.
   3. Incorporation costs between $50 and $100.

Bylaws

Bylaws detail the operational rules of your organization. The Board of Directors will use these rules to guide the efforts of the nonprofit.

• Information to include of bylaws include:
  • The procedures for electing new board members (as needed)
  • When meetings will be held
  • How to hire staff
  • What the organization can and cannot do
  • The policy for changing bylaws if necessary

Again, do your research. Study similar nonprofits, or look up sample bylaws for ideas on how to craft your own bylaws.

It's also important to include important clauses in your nonprofit corporation's bylaws, being as specific as possible to ensure your nonprofit utilizes only the best practices. Some important things to include are:

• A conflict of interest policy
• A majority vote clause
  • This ensures that the organization is heading in a direction that directors and other important players generally agree with because they have voted on any issues or decisions that the corporation faces.
  • Also be sure to note which staff members will have voting rights.
• Special meetings and the circumstances that would warrant them
• A schedule for regular meetings
• Who will analyze and submit annual reports to the proper entities (per state and federal law)
• When in the fiscal year that an annual meeting will be held

For example:

"Article III

The treasurer of the company is responsible for solely and wholly maintaining the complete books, and shall do all necessary precursors to ensure that all financial and tax documents are properly handled and kept up to date. This role also entails ensuring our organization is prepared for future federal taxes."

"Article IV

The Ferber Foundation will never disclose the personal details about any of its clients. Furthermore, any employee found to have leaked information about a client shall be subject to immediate termination."

Funding

You will likely require grant funding--local or national-- to start your nonprofit. You may also consider fiscal sponsorship, whereby a larger nonprofit financially backs a smaller startup.

1. Understanding grants for nonprofits
   • Grant money is given to organizations for specific purposes.
   • You can apply for grants from businesses, foundations, local or national governments.
     • Federal grant amounts vary widely and can involve a lengthy and competitive application process.
2. Fundraising ideas:
   • Fundraising events can garner the attention of large groups of donors
   • Consider asking local businesses to donate free items for an auction.
     • An auction will raise money and help you make connections with local businesses.
   • Host raffles or sales
3. Resources: check out grants.gov

Accounting

Determine how your organization will keep its books. From there, you can open a bank account for your nonprofit.  Many nonprofits hire a CPA to help establish an accounting system.

Additionally, you should set a budget for your nonprofit and develop a record keeping system.

• Legally, you are required to save all board documents including the minutes of board meetings, and financial statements.
• If you aren’t sure what records you must keep in official files, contact the appropriate state agency to learn more.

Apply for tax-exempt status with IRS-form 1023

Many nonprofits do not apply for federal tax-exempt status because they are able to receive all tax exemption benefits at the state level. Therefore, you should check the IRS website to determine the appropriate tax status for your organization.

If you elect to file with the IRS, your organization will become a 501 (c)3. Keep in mind, however, that there are 29 types of nonprofits eligible for this status.

• See our resources in this section to see if your nonprofit qualifies.

You will also have to pay a filing fee, which varies based on your operating budget.

• If your budget is less than $10,000 or less, the fee will be roughly $400.

If you intend to receive public contributions or business donations, you must also apply to receive tax-deductible status. You will need the following:

1. A name for your organization that is not the same as another corporation in the state
   1. Most states require the name to have a corporate designator attached to it (e.g. corp., inc., or ltd.).
   2. Apply for your chosen name on your state’s official filing website
      1. There is generally a small fee to reserve your name until you have filed your Articles of Incorporation.
2. File for other state, municipal, and county tax exemptions, if applicable.
   1. If you are unsure, check with the Department of Revenue for clarification.
3. Mail your forms.
   1. For applications sent by regular mail:

• Internal Revenue Service
• P.O. Box 12192
• Covington, KY 41012-0192

For applications shipped by express mail or delivery service:

• Internal Revenue Service
• 201 W. Rivercenter Blvd.
• Attn: Extracting Stop 312
• Covington, KY 41011[3]

*Note: you are not allowed to solicit or conduct tax-exempt business until you acquire federal and state letters approving your tax-exempt status.

Apply for an EIN or Federal Employer Identification Number

To do so you will need to file an SS-4 form with the IRS.

• An SS-4 is required in order to employ full-time staff at your nonprofit.
• You can apply for this after the approval of your Articles of Incorporation.

Example: Establishing a Nonprofit - Military

Here is a brief example of what the process outlined above might look like for someone starting a military nonprofit.

1. Research and identify what makes your nonprofit concept different from similar organizations.
2. Determine whether it makes sense to establish a stand-alone organization or integrate your nonprofit within a bigger organization working towards similar goals.
3. Follow each of the above steps for establishing a nonprofit (detailed above)
4. Crowdsource
   1. There are extensive networks connecting military personnel and their families out there. Reach out to those groups to begin to identify potential donors, supporters, collaborators, clients, etc.
   2. Reach out to local civic organizations for mentoring and support

Conclusion

Nonprofits provide essential services and goods to communities in need. Hundreds of thousands, if not millions of folks rely, in some capacity, on the work of nonprofit organizations. They provide thousands more with an opportunity to earn a living and make a difference while doing so. Hopefully, this guide clarifies some of the legal and technical requirements associated with formally establishing a nonprofit and helps anyone interested in starting one get their idea off the ground.

Additional Resources:

http://www.irs.gov/publications/p557/ch03.html, https://www.irs.gov/charities-non-profits/types-of-tax-exempt-organizations, https://www.irs.gov/charities-non-profits/applying-for-exemption-expediting-application-processing, https://www.irs.gov/charities-non-profits/submission-of-organizations-completed-application