The Ultimate Guide to Starting a Nonprofit
Starting a Nonprofit - The Webinar
This free, informative presentation will take you step by step through the process of starting a nonprofit organization. Learn as we explain the fundamentals of formation, plus the challenges…and the rewards…of launching a new charitable venture.
You will also discover why Foundation Group is the perfect partner to help you make it happen!
Key Frequently Asked Questions
What is the first step in starting a nonprofit?
The answer may not be what you expect. The initial corporate meeting is the essential first step in forming a nonprofit organization. It is at this meeting that the initial board of directors is installed and officer titles determined. The minutes (notes) of this meeting should include a resolution that shows unanimous affirmation by the initial board to establish the organization and pursue both incorporation and federal tax exemption. The purpose of the organization should be articulated in writing, as well.
Do we need to incorporate?
Probably. There are a number of tasks involved with forming a nonprofit organization at the state level. The most important of these is the incorporation process. While it is possible to form a non-corporate, nonprofit organization, (and obtain federal 501(c) tax exemption), the vast majority of organizations choose corporate status.
Forming a corporation means that the founders, or incorporators, are creating a legal entity that exists wholly apart from the people involved with it. Most people prefer to form a nonprofit corporation, in part, because of the liability protection a corporation provides. For example, if a nonprofit corporation were to be sued, the assets of its directors and members are generally protected because corporate assets are distinct from personal assets.
How do we get 501(c)(3) status for our new nonprofit?
In order to be recognized as a 501(c)(3), tax-exempt organization, the newly formed nonprofit corporate must apply to the IRS. This application process involves the creation of what amounts to a detailed business plan. The IRS provides a core form, Form 1023, which is up to 17 pages in length, that provides them with basic, structural information. The final filing package, however, averages between 50 -100 pages of information, including multi-year budgets and a detailed narrative of proposed purpose and program(s).
An alternate filing method for certain small nonprofits is Form 1023-EZ, an abbreviated, streamlined application process released by the IRS in July 2014. While faster, eligibility is strictly limited and may not be appropriate even for qualifying applicants. For more information, see:
How long does it take to get IRS approval?
Typically, IRS 501(c)(3) approval takes between 1 and 12 months, inclusive of possible written follow-up questions. Sometimes it takes a little less; sometimes a little more.
One of the primary reasons for the long review period is the amount of time it takes for a particular case to be assigned to a review agent. Depending upon the volume of applications being received by the IRS at any given time, we’ve seen “inventory” periods be as short as 30 days and as long as 8 months.
FACT: Foundation Group clients typically receive approvals in less than half the national average review time!
Does the IRS charge a fee to apply?
Yes. Typically, the fee is either $400 or $850, depending upon the applicant organization’s budget expectations.
Foundation Group clients pay this fee directly when filing with the IRS.
Are there other concerns when starting a nonprofit?
Yes. One of the most overlooked and critical of these is registering with the state Division of Charities. This is required in most states to be able to legally solicit donations from the public, whether that is a fundraising event, letters, direct appeal and (increasingly), online requests for support.
Failure to comply with this requirement can severely hamper a nonprofit’s ability to raise the funds it needs to operate. In addition, it subjects the organization to potential penalty. Our Complete Compliance package includes this critical registration service automatically.
Did You Know...?
Recommended Articles for Startups
The concept of who owns a nonprofit organization can be hard for some to grasp, especially given that the answer is, "No one...and everyone!" We encounter this confusion with new clients on a fairly regular basis. And, given people's understanding of how basic business operates, it is understandable. In order to fully appreciate the concept of "non-ownership", it is helpful to first talk about the various types of business entities. Then, we'll look at organizational purpose. By the end of the article, it should make a lot more sense. There are several different types of business entities. For-profit companies make up most of…
When starting a 501(c)(3) organization, there are generally two choices of how the organization will be classified. It can be a public charity or a private foundation. Though greatly outnumbered by public charities, private foundations bring a lot to the table. Many people have a layman's understanding of the difference between public charities and private foundations: Public charities are understood to perform charitable work, while private foundations support the work of public charities. That grassroots definition is, in practice, mostly true. The specifics, however, are slightly more complicated. Let's take a closer look at the differences, and similarities, between these…
It often seems that when otherwise business-savvy individuals become involved in a nonprofit organization, they set aside all they ever learned in business and proceed to operate their nonprofit as if business rules do not matter. As most soon find out, they matter a lot. In this post, let's take a look (in no particular order) at 10 business basics that nonprofits ignore at their own peril. Money. This may come as a shock to some, but being "nonprofit" does not, cannot, mean NO PROFIT. With the notable exception of GM, AIG and a few others, a business must make…
This is installment #2 in our ongoing series on leadership. Our first installment was more of an introduction. In this post, we are going to explore the concept of governance vs. management. Governance and management: For many, these are interchangeable terms. They shouldn't be. And in far too many nonprofits, the leadership fails to understand the difference. Properly separating the concepts of governance and management can be critical to the success of your endeavor. Governance is leadership of the big picture. Primarily the responsibility of the board of directors, governance describes the notion of governing.Several ideas are simultaneously embodied in…
The word "leader" conjures up a variety of images: your old Little League coach, a military general, your boss...even the president of the United States. Regardless of who (or what) comes to mind, there is the common thread of someone who leads. But what does leadership really mean? Certainly it means more than just being in charge. And in the setting of a nonprofit organization, is the meaning different? I would submit that while the meaning is not so different, the goal of leadership often is. For example, in a for-profit setting, the goal is the financial success of the…
So...you want to start a nonprofit. Fantastic! That puts you in pretty good company. In any given year, as many as 75,000 applications for 501(c)(3) tax exemption are filed with the IRS. Less than half survive the process, but there is certainly no lack of interest in doing something charitable. But what does it really take to start a nonprofit? What are the non-negotiables that simply must be in place in order to get started with any hope for success? In this post, we are going to explore 5 essential questions that need answers before you get started on your…
Founder's syndrome. It affects nonprofits and for-profits alike. And it can be crippling to any organization. Understanding what it is and how to avoid it is crucial to the future of your 501(c)(3). Taken from that most-reputable of sources, Wikipedia, founder's syndrome is defined as, "a pattern of negative or undesirable behavior on the part of the founder(s) of an organization". While that can be true, we find that most cases of founder's syndrome within nonprofits simply involve a founder with too much influence. In plain English, it means that the universe revolves around the founder...and not in a good…
No decision you make regarding your nonprofit organization carries more importance than who is chosen to lead it. The members of your board of directors make up the governing body of your nonprofit and are legally accountable for its actions. Practically speaking, they are accountable to your supporters and beneficiaries to oversee the accomplishment of the organization's purposes. The buck stops with them...at least it is supposed to! But that's another article. If you are just starting out, who should be asked to serve? And, if your organization is already established, and vacancies on the board need filling, who should…
Occasionally, you have to protect people from themselves. Even those with the best of intentions can mess things up so badly that it can jeopardize what they are trying to accomplish. In the nonprofit world, there are best practices, good practices and acceptable practices...and, really, really bad practices that will cause your organization, its board, donors and beneficiaries headaches galore. This week, we are going to explore the Dirty (Half) Dozen Nonprofit No-Nos, in no particular order. We will limit our discussion to 501(c)(3) nonprofits. 1. Dictatorships. If you want to be your own boss and run the show as…