How to Start a 501c3 Nonprofit Organization
1) Determine what type of nonprofit organization you want to create. Choose an issue that is important to you or something that is a matter of public interest. Such issues may include arts, charities, education, politics, religion, research or some other non-commercial endeavor.
2) 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.
3) Apply for the name that you’ve chosen. Take the following steps:
Visit your state’s filing office website or call your state’s corporations division. Ask to see if the name is available or if it is already taken.
If the name is available, then you can usually pay a small fee that will reserve the name for you until you’ve filed your Articles of Incorporation. If the name is taken, then create another name.
4) Formulate your mission statement. As a nonprofit organization, you exist to accomplish your mission based upon your purpose, services and values.
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.
Make your mission statement compelling. It will be used in all published materials, funding requests and public relations handouts. Use some of these mission statements as examples:
“The mission of St. Jude Children’s Research Hospital is to advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment.”
“The National Mental Health Association is dedicated to promoting mental health, preventing mental disorders and achieving victory over mental illnesses through advocacy, education, research and service.”
“The mission of Texas Mental Health Consumers is to organize, encourage, and educate mental health consumers in Texas. TMHC supports and promotes the mental health recovery process through peer directed and operated services, advocacy, economic development, and participation in public mental health policy design.”
5) Hire an attorney. Your attorney will help you with your Articles of Incorporation and the bylaws.
Hire someone with 501(c)(3) experience to help you file your state and federal exemption forms. You’ll save both time and money in the long run.
Most paralegals and attorneys have little experience with nonprofits. You can usually check out these services via the state bar association, references from fellow nonprofit owners or the Better Business Bureau.
6) File Articles of Incorporation. Articles of Incorporation are official statements that you are creating an organization, and they are filed with a state’s corporations office.
Articles of Incorporation protect both board and staff from legal liabilities incurred by the organization, making the corporation the holder of debts and liabilities instead of placing responsibility with the individuals and officers who work for the organization.
The specific requirements governing how to incorporate are determined by each state. You can obtain the information you need to proceed with this step from your state Attorney General’s office or your Secretary of State’s office.
These official documents may have different names in different states. For example, you may see names like “corporate charter,” “trust instrument” or “articles of association.”
Before you spend any money, consider consulting with an attorney who is experienced in the area of nonprofit law. This step will help you to avoid many major mistakes that people make when they try to incorporate without legal representation.
7) Apply for a 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.
8) Hire a certified public accountant (CPA). Consider the following factors:
Look for an accountant who has experience with organizations like yours. Someone who’s never worked with a 501c3 may not have the experience to handle the nuances of the process.
Make sure that you feel comfortable with the person. The person should reliable, should listen to your concerns and should respond to requests as soon as possible.
Choose a firm that matches the size of your nonprofit. If you’re a small 501c3, then choose a CPA who works alone or a small firm. For large nonprofits, choose a large firm with a good reputation.
Take time to make your choice. Look for referrals and references and interview different candidates so that you make the best choice from a pool of available accountants.
9) Apply for recognition of tax-exempt public charity status. You’ll need to fill out either Form 1023 or 1024, which is an application. Publication 557 will provide detailed instructions for filling out either form and will let you know which one, 1023 or 1024, your organization needs to file.
Submit financial statements for the current year as well as budgets for the next 2 years in Part XI of Form 1023.
If an attorney is representing you, fill out Form 2848 to designate power of attorney.
Either can be obtained from your local IRS office or the IRS website. The filing fee will depend upon the size of your organization’s budget. This application is an important legal document, so seek the assistance of an experienced attorney or certified public accountant (CPA) when preparing it.
Send your forms to 1 of the the following addresses:
For applications sent by regular mail:
Internal Revenue Service
P.O. Box 12192
Covington, KY 41012-0192
For applications shipped by express mail or delivery service:
Internal Revenue Service
201 W. Rivercenter Blvd.
Attn: Extracting Stop 312
Covington, KY 41011
10) File for state and local tax exemption. In accordance with state, county and municipal law, you may apply for exemption from income, sales and property taxes. Contact your state Department of Revenue, your county or municipal Department of Revenue, local Departments of Revenue and your county or municipal clerk’s offices for information on how to apply for exemption in your state or municipality.
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