The Ultimate Guide to Starting a Nonprofit
Greg McRay, EA
Successfully Starting a New Nonprofit - Free Webcast
Join our founder and CEO, Greg McRay, for this free, informative presentation: Successfully Starting a New Nonprofit
In this webcast, we will explore the ins-and-outs of getting a new nonprofit up and running, the right way. We’ll explore the process itself, from incorporation, to IRS 501(c)(3) status, to state charity registration. We’ll also take some time to dive into what makes a startup successful, and why doing it according to compliant, best practice can give you a serious head start. Finally, we will talk about Foundation Group’s SureStart™ Program, designed specifically to help new nonprofits turn their vision into reality.
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...?
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