What Steps Need to Be Taken to Form a Nonprofit Business?
Whenever anyone talks about starting a new business, nine times out of 10 the process they reference involves launching a limited liability company (LLC). Although all businesses share some fundamental steps, the general conversation does tend to leave aspiring nonprofit business owners out in the cold. In the early stages of starting a nonprofit, the best thing you can do is get informed on the steps you’ll need to take to get your 501(c)(3) off the ground.
Running a nonprofit corporation, of course, brings its own distinct set of challenges. No matter how much of a positive impact your prospective business promises to make, you’re doing your mission a disservice if you don’t get your nonprofit started right. So, before you launch your nonprofit business, here are a few key questions you should consider first.
Is a Nonprofit Right for You?
Nonprofits are growing. In 2015, 1.56 million nonprofit organizations were registered with the IRS in the U.S., which was an increase of 10.4 percent from 2005. These nonprofits contributed about $985 billion to the U.S. economy in 2015.
Generally, a nonprofit corporation or organization — as its name suggests — isn’t focused on financial gain for its shareholders. Rather, any revenue a nonprofit generates feeds directly back into whatever cause or mission it has chosen to support. Any additional money goes directly into the nonprofit itself, including employee salaries, administrative expenses and other costs.
The incorporation process is accessible to all nonprofits, but only those that meet specific parameters can achieve the 501(c)(3) tax-exempt status and corresponding perks. Despite how attractive this sounds, you shouldn’t enter into a nonprofit lightly. If you are passionate about a specific cause, however, a nonprofit could be an excellent way to escalate your mission.
Types of Nonprofit Corporations
Hopefully, you have a mission in mind, but what type of nonprofit best suits your needs? Schools, museums, churches and food banks are all common examples of nonprofits. Digging a bit deeper, you will want to identify your nonprofit as one of the following:
- Public charities: Using public donations, these nonprofits help the community through minimal-fee or low-cost services, such as health clinics and food banks. In 2015, public charities “accounted for just over three-quarters of revenue and expenses for the nonprofit sector as a whole.”
- Social advocacy organizations: These nonprofits rely on donations as well as membership dues and are perfect for people passionate about a particular social issue.
- Foundations: Funded by for-profit corporations, these nonprofits raise additional money to improve their community or take on larger missions to benefit a specific group. In 2017, giving from foundations totaled $66.9 billion.
How to Form a Nonprofit 501(c)(3)
Name Your Nonprofit
Your organization’s name is the very first impression you make on the world. Because of this, all business owners grapple — and often struggle — with the naming process. This is understandable, as few decisions make as big an initial impact on your company. But for nonprofits, the pressure is even more intense.
More than likely, your nonprofit will depend on donations of some kind to propel its mission forward. Without a memorable name that effectively conveys your mission, your nonprofit will have a hard time drumming up contributions. To avoid confusion (and litigation), you should also run a business name search to ensure your nonprofit name — and its abbreviation — is unique.
Incorporate in Your State
Like any other business, you need to file paperwork and acquire licenses before you launch. The most important is filing your nonprofit’s Articles of Incorporation with the corresponding state agency. Other paperwork — and filing fees, of course — will vary based on your state. You’ll also need to ensure your document includes your intent to become a tax-exempt business.
File for 501(c)(3) Status
To that end, remember when we mentioned how nonprofit incorporation and tax-exempt status are two separate issues? For the latter, you’ll have to apply for 501(c)(3) tax exemption with the IRS. Although the application varies, it tends to be around $500. So bear that in mind. Once the IRS approves of your filing, you’re good to go.
Establish Your Bylaws and Board
Before you officially start your nonprofit, you need to set up the fundamentals of your company, such as your nonprofit’s purpose and rules of operations. Moreover, appoint your board of directors according to these rules and begin planning your first meeting. With a new nonprofit to manage, you’ll have a lot to discuss.
Hold Your First Meeting
At a minimum, your board of directors should include a president, treasurer and secretary. Board meetings will be where you discuss long-term strategy for your nonprofit. But the first meeting should center on the immediate future of your business, such as yearly goals, finances and any other guidelines or outstanding and time-sensitive actions you need to take.
Easily Form a 501(c)(3) with Incfile
With any luck, these tips can help provide you with the guidance you need to get your own nonprofit corporation off to the best possible start. If you do feel ready to move forward with your nonprofit, Incfile can get you started for $0 + state fees. You’ll also receive a free year of Registered Agent service.
From answering all your questions to incorporating your business, we can relieve all the stress and heartache of getting your nonprofit started. That way, you can focus on serving your mission. Sound good? Then let’s get started.