Starting a Nonprofit: Complete Guide

Written by johntalaguit | Edited by Rory Hart
Sections of this topic
    Team-of volunteers-stacking-hands

    © Copyright Carter McNamara, MBA, Ph.D., Authenticity Consulting, LLC,
    Adapted from the Field Guide to Developing, Operating, and Restoring Your Nonprofit Board.

    This topic in the Library provides comprehensive advice and materials for anyone who is considering starting a nonprofit organization. The reader can use the free information in this Library topic, along with other Library topics that are referenced later on below. If you need more help, see our coaching services.

    Sections of This Topic Include

    Each of the links listed immediately below is a link to a section later on, farther down below, on this Web page.

    Starting Your Nonprofit

    Shutting Down a Nonprofit

    Shutting Down a Nonprofit

    Major Resources

    General Resources

    Sources of Assistance to Help You Develop Your Nonprofit

    Also, consider
    Related Library Topics

    Learn More in the Library’s Blogs Related to Starting a Nonprofit

    In addition to the articles on this current page, also see the following blogs that have posts related to Starting a Nonprofit. Scan down the blog’s page to see various posts. Also, see the section “Recent Blog Posts” in the sidebar of the blog or click on “Next” near the bottom of a post in the blog. The blog also links to numerous free related resources.

    STARTING YOUR NONPROFIT

    Should You Really Start a New Nonprofit?

    There is a great deal of misunderstanding about the benefits of starting a nonprofit. Particularly in times of a poor or rough economy, people think they can start a nonprofit to quickly generate income. Or, when people see a strong, unmet need in the community, they often focus only on the singular solution to start a new nonprofit. The following article gives a very useful description of the realities of starting yet another new nonprofit.

    Also, consider
    Should I Start a For-Profit or a Nonprofit?

    Before starting a nonprofit business, there is some preliminary “business” thinking that you really should do. Doing this thinking now can save you — and maybe your employees and clients — a great deal of anguish.
    Entrepreneurs — Are You Really Ready to Start a New Venture?

    What Do You Mean by “Starting a Nonprofit”?

    Get Clear About the Purpose (the Mission) for Your New Organization

    Perhaps the best way to really clarify to yourself what you intend to accomplish by starting a new nonprofit is to write a basic mission statement for your organization. You’ll soon need this mission statement anyway if you plan to incorporate your nonprofit (more about incorporation a little later on). The following guidelines may be helpful to you when writing your first, basic mission statement.

    1. At its most basic, the mission statement describes the overall purpose of the organization. It addresses the question “Why does the organization exist?”

    2. The statement can be in a wide variety of formats and lengths, ranging from a few sentences to a few pages. At this stage in the development of your nonprofit, it might be best to keep your mission statement to at most about half a page.

    3. When writing the mission statement, try to include a description of what you think will be the new nonprofit’s
    a) primary benefits and services to clients
    b) groups of clients who will benefit from those services
    c) values that will guide how your nonprofit will operate
    d) how you’d like others to view your nonprofit

    4. It’s often useful to refine the first, basic mission statement by adding or deleting a sentence or a word from the mission statement until you feel the remaining wording accurately describes the purpose of the new nonprofit organization.

    (You may want to read more about Developing/Updating Mission Statements.)

    Now Think About What Kind of Nonprofit You Want to Start

    The phrase “starting a nonprofit” can mean several things. Read the following very basic information to begin thinking about what you mean when you set out to “start a nonprofit”. Keep your mission statement in mind when thinking about each of the following. (There will be more specific guidance later on when you read the next subsection Variety of Checklists to Reference When Formalizing Your New Nonprofit.)

    • You can be a nonprofit organization just by getting together with some friends, e.g., to form a self-help group. In this case, you’re an informal nonprofit organization.
    • You can incorporate your nonprofit so it exists as a separate legal organization in order to a) own its own property and its own bank account; b) ensure that the nonprofit can continue on its own (even after you’re gone); and c) protect yourself personally from liability from operations of the nonprofit. You incorporate your nonprofit by filing articles of incorporation (or other charter documents) with the appropriate local state office. (An incorporated nonprofit requires a board of directors.) In Canada, you can file for incorporation at the provincial or Federal levels.
    • If you want your nonprofit (and if you think your nonprofit deserves it) to be exempt from federal taxes (and maybe some other taxes, too), you should file with the IRS to be a “tax-exempt” organization. (The IRS states that you must be a corporation, community chest, fund, or foundation to receive tax-exempt status. Articles of association may also be used in place of incorporation.) (Probably the most well-known type of nonprofit is an IRS classification of 501(c)(3), a “charitable nonprofit’.) (Being tax-exempt is not the same as being tax-deductible.) In Canada, you can file for tax exemption at the provincial and Federal levels.
    • Depending on the nature of your organization, you may also granted tax-deductible status from the IRS. Publication 526 lists the types of organizations to which donations are deductible. In Canada, the Canada Customs and Revenue Agency (CCRA) grants charitable status, and you must be incorporated to achieve charitable status.
    • So, for example, you could start a nonprofit that is incorporated, tax-exempt, and eligible to receive tax-deductible donations.
    • The particular steps you take when starting your nonprofit depend on your plans for your organization, including the nature of its services. They also depend on how the IRS interprets the nature of your organization, including its services. Again, in Canada, you can file for incorporation and tax-exempt status at the provincial or Federal levels.

    You may want to read more about What is a Nonprofit?.)

    Consider Fiscal Sponsorship to Jump-Start Your Organization

    In some cases, you might find and work with another nonprofit organization that will act as your fiscal sponsor. A fiscal sponsor might be useful to you if your nonprofit:
    1) Does not have sufficient resources to handle startup costs and fees
    2) Does not have sufficient skills initially to manage your finances
    3) Will address a community need and then no longer need to exist.
    See Fiscal Sponsorship — Help You Get Started?

    Do You Need a Lawyer to Start Your Nonprofit?

    You Can Do Much of the Work Yourself — But Get Legal Advice and Guidance

    You can do much of the work yourself to get incorporated and/or tax-exemption and/or tax deductibility, but you should have some basic guidance and advice from a lawyer who understands nonprofit matters. For example, in the USA, it’s very important how you characterize your plans when filing for incorporation with your state and/or for tax exemption and/or tax deductibility with the IRS — otherwise, your new organization may be deemed a for-profit or you may have to pay federal taxes (among other taxes) on your income. In addition, there are various reports and filings you may have to submit. A nonprofit-knowledgeable lawyer can help you a great deal. Ask other nonprofits for references to good
    lawyers. Ask a local funder. Call the local bar association. The following link might also help you. See




    Nonprofit Incubators

    Business incubators are usually facilities that help businesses share resources as low-cost means to getting started. You may have a nonprofit incubator in your community. Contact the local office of the National Council of Nonprofit Associations to find out. The following links will give you an overview of business incubators.
    Business Incubation FAQ

    Checklists to Help You Register Your New Nonprofit in the U.S.

    NOTE: Be sure to first read the above section, First Things First — What Do You Mean by “Starting a Nonprofit”? before you jump into any of the following checklists.

    The following are a variety of checklists to help you proceed through the various steps to formally start your nonprofit. It’ll help a great deal if you’ve done some preliminary planning — if you haven’t, the above link Preparation for Planning a Business Venture will help you.

    You might glance through a variety of checklists to get an impression of what needs to be done and to select the checklist that you believe is most useful to you. The topic Nonprofit Taxes will be useful reading after you’ve reviewed the following checklists.

    10 Keys to Starting a Nonprofit

    Various Online Checklists for Starting a Nonprofit Organization

    1. Here’s a comprehensive, narrative description of the steps:
    How to Start a Nonprofit Organization

    2. Here’s another checklist with the information Establishing a Nonprofit Organization – Tutorial and Start a 501(c)(3) non-profit organization. These are very basic overviews of the major steps to start a nonprofit.

    3. You might also see How to Start a Nonprofit. It mentions several of the same steps and adds references to more forms needed by the IRS.

    (NOTE: There are samples of articles of incorporation, along with bylaws, at Articles of Incorporation at Corporate Bylaws.)

    10 Keys to Starting a Nonprofit Private Foundation

    Sites with Numerous Checklists and More Sources of Information

    The Nonprofit Startup Checklist offers a list of articles in regard to starting a nonprofit organization.

    The Starting a Nonprofit

    Table of Reminders for Registering Your New Nonprofit in the U.S.

    The following table depicts the important steps required to register your new nonprofit. These steps are also mentioned across many of the checklists referenced above. These steps also assume that you chose not to seek Fiscal Sponsorship.

    activity

    comment

    for help
    draft mission statement draft a brief mission statement that describes the charitable purpose of your new organization; your board should soon review it during strategic planning and authorize the statement

    here
    recruit board members (if you plan to incorporate it in your state) recruit at least enough board members to meet state requirements for a corporate board (contact the state attorney’s office); if you don’t plan to incorporate, consider an informal advisory board to help guide you

    here
    get a lawyer to help you file articles of incorporation (if you plan to incorporate), and applications to the IRS for tax exemption (if you plan to seek exemption from federal taxes); you can do most of the work yourself, but at least have a lawyer review the materials before submission; will eventually need special expertise to review personnel policies

    here
    get a banker and bank account get a bank account; seek a bank that understands the needs of new,
    small nonprofit

    here
    get accountant get an accountant or other finance expert to help you set up a basic bookkeeping system; when you get a board treasurer, then he/she can be very helpful in this regard

    here
    get insurance agent you may need liability insurance, property insurance, and when
    you hire staff: worker’s compensation, health and life insurance
    benefits, etc.

    here
    draft articles of incorporation and get board approval these specify the legal description of your organization and power to the board; you’ll need to draft these only if you plan to file for incorporation with your state; the Board should approve the Articles before submission

    here
    draft bylaws and get board approval these specify how the board will operate and configure the staff; some states require these; some of this information will be in the Articles if you file Articles; the board should approve the bylaws

    here
    file for incorporation with the state register for incorporation including submitting your drafted and approved Articles (if you plan to incorporate); may need to submit bylaws, too; also find out what various reports the state wants from nonprofits secretary of state or secretary of commerce
    file for federal tax-exempt with the IRS apply for tax-exempt status (to be exempt from paying federal
    taxes); the board should approve this filing before submission;

    here
    get state tax exemption from the state once you get an IRS exemption, file for any state tax exemptions state attorney, attorney general or secretary of commerce
    get property tax exemption from city once you get an IRS exemption, file for any state tax exemptions local city tax assessor
    get solicitation license if you plan to solicit funds, your city may require a solicitation
    license    		 local city offices
    get mail permit this permit gives you a discount on bulk mailings local post office
    get the federal employer number (do this once you start to hire employees) get federal employer
    number to withhold income and FICA (once you hire employees)    		 secretary of state, secretary of commerce
    get unemployment insurance req’s do this once you start to hire employees secretary of state, secretary of commerce

    Something to Avoid: Founder’s Syndrome

    Founder’s Syndrome occurs when an organization operates according to the personality of someone in the organization (usually the founder) more than it operates according to the mission of the organization. The Syndrome is not uncommon. To learn how to “diagnose” and recover from the syndrome, including to just stay away from it in the first place, read:
    Founder’s Syndrome — How Organizations Suffer — and Can Recover

    FREE RESOURCES





    Free Booklets — Guides to Management and to Program Design and Marketing

    (The following booklets are geared to new managers and supervisors of new nonprofits. The reader might be best served to print the booklets for ongoing reference.)

    Basic Guide to Management and Supervision provides complete guidelines to accomplish basic skills in management and supervision, including staffing the organization, training employees, managing the performance of employees, and developing personnel policies associated with these supervisory practices.

    Basic Guide to Nonprofit Program Design and Marketing provides complete guidelines and resources to develop your nonprofit programs and services “from the ground up”.

    Free, Online Nonprofit Organization Development Program

    This free, self-paced program will guide you through starting your new nonprofit, building your board, training about basic skills in management and leadership, conducting strategic planning, developing a program and marketing plan, developing a fundraising plan, understanding basic financial and tax management practices, staffing and supervising, and more. The program includes 12 online, self-directed learning modules. Learners progress through each module at their own pace. Learners complete each learning module when it’s appropriate to the particular stage of their organization’s development. Learners are highly encouraged to complete and share assignments with their board members. See
    Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit

    Also, consider
    Supersites

    Sources of Assistance to Help You Develop Your Nonprofit

    Organizations, Websites, Newsletters, etc.

    Don’t forget that if you need help, there are plenty of resources available to help you, including organizations, information on Websites, online newsletters, etc. See

    Helpful Guidebooks for You

    Much of the information on this topic was adapted from the following guidebooks:

    For the Category of Capacity Building (Nonprofit):

    To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

    Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.


    johntalaguit