How to Start a 501(c)(3) Nonprofit
Step 1. Choose a name for your organization
Although each state has its own set of regulations, you can expect 3 general rules to apply:
– The name cannot be the same as the name of any other corporation on file with the state’s corporations division.
– About half of all states require the name to end with a corporate designator, such as Corporation (Corp.), Incorporated (Inc.) or Limited (Ltd.).
– Your name cannot contain certain designations reserved for the state, such as United States, Reserve, Federal, National, Cooperative or Bank.
Step 2. File Articles of Incorporation
For nonprofits that want to incorporate, state law governs the requirements for forming and operating a nonprofit corporation. Contact secretary of state or state attorney general’s office.
Step 3. Apply for IRS Tax exemptions
Nonprofit corporations with charitable, educational purposes have tax-exempt status under section 501(c)(3) or section 501(c)(4) of the Internal Revenue Code. To apply, obtain an application form 1023 and publication 557 (detailed instructions) from the local IRS office. The application is a legal document – an attorney can help prepare it.
Step 4. Apply for State and Local Tax exemptions
According to state, county, and municipal law, apply for exemption from income, sales, and property taxes with appropriate revenue department.
– State Corporate Tax Exemption – Most states recognize the federal 501(c)(3) status as valid for state corporate tax exemption. California is a big exception, requiring its own application and review process for charity status. Several other states require a separate application, but those are typically simpler registrations.
– State Sales Tax Exemption – Many states grant an exemption to charities that allows them to purchase items for use by the organization without having to pay sales tax. Applying for exemption usually requires a nonprofit to have already obtained 501(c)(3) status.
Step 5. Draft bylaws / mission statement
Bylaws should be drafted and approved by coalition early in its development. An attorney experienced in nonprofit law can review bylaws for appropriateness.
The mission statement is a concise expression that covers in one or two sentences the name of the organization, what it does, for whom it performs services and where it dispenses service. It should also portray how your organization is distinct from others like it.
Step 6. Form Board of Directors
Forming a board requires careful thought and extensive recruitment efforts.
– Each state has regulations that determine the minimum size of the board, which is typically 3, 5 or 7, but the optimum number of people who sit on the board should be determined by the needs of the organization.
– Based on what your organization would like to accomplish, you should decide what special skills and qualities you require of the individuals on your board. Identify qualified individuals who are supportive of your mission and are willing to give of their talents and time.
– Include the community at large, not just your specific community of focus (. Consider the religious community, local service clubs, legal professionals and colleges and universities as sources for a prospective Board of Directors. Do not overload people who already serve on many committees so that you can seek a balance between old and new leadership.
Step 7. Develop Budget, Record Keeping and Accounting
Financial oversight and resource development (e.g., fundraising, earned income, membership) should be described in budget.
Corporate documents, minutes, financial reports, and other official records must be saved for the life of the organization.
Funds requires an accounting system that meets current/future needs. Annual audits by an accountant (CPA) may be required.
Step 8. Apply for Federal Employer Identification Number
Regardless of whether or not you have employees, nonprofits are required to obtain a federal Employer Identification Number (EIN), which is also referred to as the federal ID number.
– This number is used to identify the organization when tax documents are filed and is used not unlike an individual’s Social Security number.
– If you received your number prior to incorporation, you will need to apply for a new number under the corporate name. Ask for Form SS-4 when applying for your EIN.
Step 9. Fulfill Charitable Solicitation Law Requirements
If your organization’s plans includes fundraising, be aware that many states and a few local jurisdictions regulate organizations that solicit within that state, county or city.
– Usually compliance involves obtaining a permit or license and then filing an annual report and financial statement.
– Contact the state Attorney General’s office, the state Department of Commerce, state and local Departments of Revenue and county or municipal clerk’s offices to get more information.
Step 10. Apply for nonprofit mailing permit from Postal Service
The federal government provides further subsidies for nonprofits with reduced postage rates on bulk mailings.
– While first-class postage rates for nonprofits remain the same as those for the for-profit sector, second- and third-class rates are substantially less when nonprofits mail to a large number of addresses.
– For more information on eligibility, contact the U.S. Postal Service and ask for Publication 417, Nonprofit Standard Mail Eligibility.