Starting a new nonprofit organization is exciting. It can also be daunting, as you may wonder where to begin and how to find the right resources. It is important to set up your nonprofit organization correctly from the start, so you can avoid unnecessary delays and extra paperwork.
Here are key steps for starting your organization off on the right foot.
Step #1 Choose a name for your nonprofit.
At the very start, choose a name for your organization that reflects the intent and aspirations of your new nonprofit. Have an attorney verify that your name is available for you to adopt and use. You do not want to have to change your name because you find out later that someone else is already using it.
Step #2 Incorporate your organization.
In order to create your nonprofit as an entity, you need to incorporate it. This is accomplished by filing Articles of Incorporation with your state.
Many states provide an online option for incorporating your organization, and it can be tempting to use this option for its apparent efficiency. However, typical online forms do not include the required language for a nonprofit to qualify as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. Therefore, it is best to not use the online form, but instead seek an attorney who specializes in nonprofit organizations to help you.
The information you will need for incorporation includes:
There is a nominal filing fee charged by the state to record your Articles of Incorporation.
Step #3 Obtain an Employer Identification Number (EIN).
Your organization’s EIN is its social security number – it is the number that identifies your organization for all government filings. You obtain your EIN through the IRS website:
The form must be completed by a person who controls, manages or directs the organization (i.e., the president). Upon completing the online form, you receive your EIN immediately. There is no charge for obtaining an EIN.
Step #4 Open a bank account in the name of your charitable organization.
Once you have your EIN, you should open a bank account in the name of your charitable organization. Keep records of the seed money used to open the account; if this is a loan to the organization, you will need to keep track of that fact and when it is repaid. If the seed money is composed of donations, track the source of those donations.
Step #5 File Form 1023-EZ, “Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.”
Have an attorney help you fill out the 1023-EZ, which is the application for recognition of exemption under 501(c)(3). This form is submitted online directly to the IRS and requires a $275 filing fee.
If approved, the IRS will send you a Determination Letter with important information for your organization. Typically, you receive your Determination Letter within 2-4 weeks. The Determination Letter is a critical document for your organization – keep it with your core documents, as donors may ask to see a copy of it.
Step #6 Draft Bylaws.
Bylaws are an internal document that sets out the day-to-day operation of your organization. You can begin with simple bylaws that specify key facets of your organization, such as:
Your bylaws are not recorded with the state, but you should keep them with the other key organizational documents for your nonprofit.
Step #7 Apply for Charitable Organization credentials with any state(s) within which you solicit donations.
Each state regulates charities that solicit donations within their borders, and each state sets its own threshold for registering. The trigger here is where your donations originate. For example, if you have donors in Minnesota and Wisconsin, you will likely have to register in both states. Keep good records, and register in the required states.
The filing fee for state registration is typically nominal.
Step #8 Create an internal calendar system to track annual filing requirements with the IRS and state(s).
Congratulations! After completing the above steps, your organization is recognized at the federal and state levels as a nonprofit, charitable organization. Each of these registrations will have ongoing, annual filing requirements in order to keep your registration. It is critical that you create an internal calendar system to track these requirements.
The IRS has many helpful tools at: https://www.irs.gov/charities-and-nonprofits
Your registration states will also have useful resources at their respective website.
2 Optional Steps…
Customize your listing on GuideStar.
Once you receive 501(c)(3) status, you will be automatically included in an online listing of over 2.7 million nonprofit organizations, run by GuideStar: https://www.guidestar.org/
GuideStar provides an online presence for your organization, and as much information as you would like to share on the platform. It also provides certification levels, as an indication of your transparency and is a useful marketing and fundraising tool. You can include a link to your website and “donate” button right on the GuideStar listing.
Obtain a Certificate of Exempt Status (CES), which allows you to avoid paying sales tax on purchases for the nonprofit organization.
If you will be making substantial purchases within a particular state, you may want to apply for a CES. You would present the CES to a vendor to avoid paying sales tax on purchases from that vendor. The application for a CES is typically done on the state department of revenue website. There is no filing fee.
These steps can help make the process of creating your nonprofit organization a streamlined, enjoyable process. The key is staying organized and finding the right resources.
Karrie Weaver practices intellectual property, trademark, patent, and trade secret law.