Business Law

Legal Guide to Starting a Non-Profit Organization

In our guide we’ll walk you through the basic starting point and how to legally go about starting a non profit organization.

Have a great idea for an organization that might benefit your community? Starting a non profit might be your next step in making your goals come true. But how exactly do you go about starting a non profit? In our guide we’ll walk you through the basic starting point and how to legally go about starting a non profit organization. 

What is a non profit organization

Unlike a for-profit organization, a non profit organization operates to provide a service to the public that enhances the lives of those it serves, not for the purpose of making money. 

There are 27 different types of non profit organizations and each type has its own rules and guidelines it must adhere to. The most popular are 501(c)(3). Organizations that are classified as 501 (c)(3) are organizations that serve in the following capacity: 

  • They are charitable
  • They are tied to education
  • They are a religious organization 
  • Operate for scientific services
  • They address or operate on behalf of public safety
  • They promote youth sporting events
  • They are focused on preventing cruelty towards animals and children. 

Another popular type of non profit organization is a 501 (c)(4). These types of organizations deal with the following

  • Advocacy groups
  • Social welfare groups
  • Fund employee benefits
  • Support recreational clubs

When you are considering starting a non profit organization, there are some steps you should take before you move forward in the legal steps of starting a non profit. Start by creating a vision and mission statement for your non profit as this will help you determine whether or not your organization will be successful. Your vision and mission statement should answer the following questions: 

  • Is there a clear need or needs for your non profit? 
  • How will your organization address these needs?
  • Who will your organization serve? 
  • What are some short term and long term goals your non profit will want to accomplish?

If you are able to offer concrete answers to these questions, then it’s an indication that you are ready to move forward in legally establishing your non profit organization. 

1. Select a Business Name for Your Non Profit

After you have established a foundation of who your non profit will serve and in what capacity, it’s time to select a name for your organization. When you consider the name of your organization, it’s helpful to brainstorm with members in your team to find a short and succinct name that captures the vision, mission, and goals of your non profit. Some factors that determine a good name include: 

  • Easy pronunciation and spelling so that your audience remembers it. 
  • Determine how and if abbreviations could serve your non profit name.
  • Consider a slogan that will go along with your name. 

Once you have established a name, be sure to do a quick Google search to check out what other organizations that have the same or similar name offer. Doing this will allow you to consider the quality of your non profit’s name and whether or not you should change it. 

Some states have specific requirements that go along with a business name. A common requirement is that your non profit have a corporate designation or its abbreviation. Common designators include: 

  • Corporation (Corp)
  • Company (Co) 
  • Limited (Ltd)

Once you have selected your business name, it’s time to look it up with your Secretary of State to make sure that the name is available for you to use. You will also need to check with the U.S. Department of Commerce website to make sure that your name is not trademarked by another entity. 

2. File Articles of Incorporation

Next, it’s time to file your organization’s document formally known as “articles of incorporation”. You will file your articles of incorporation with the Secretary of State or the Business Registration Department or a similar agency in your jurisdiction. Filings generally cost a fee and the fees can range anywhere from $10 – $200. Depending on where you file, filing your articles can be done online or by mail. Filing articles of incorporation will officially register your organization’s name and establishes liability for the directors and the members within the organization. 

Apply for your IRS Tax Exemption. 

non profit organizations have the benefit of being tax exempt. As part of this, purchases made on behalf of your non profit can be done tax free. In order to take advantage of this benefit, you will need to apply for your IRS tax exemption. This can be done by filling out the Federal 501 (c)(3) tax exemption application. Once filled out, attach the application to your filed articles and submit them to the IRS. 

If you are a smaller operation or are just getting started, then you may be able to file a form 1023-EZ. This form is more streamlined and simplified with a shorter application that can be completed online. 

In most states, once you fill out your non profit articles of incorporation and are granted your federal 501 (c)(3) tax exemption, you do not need to file for state tax exemption because it will automatically be granted. However, you need to check with your state tax agency to make sure that you do not need to file a separate form for state tax exemption. 

3. Obtain Necessary License and Permits

Depending on which state you are operating out of and what your non profit’s operations will be, you may need to apply for different licenses and permits. For example, different activities that your organization will participate in may require zoning permits. Additionally, if you will be selling products or services, then you will need to apply for a sales tax permit. Be sure to check with your state department or your state’s licensing agency to see what necessary licenses and permits your non profit needs. 

4. Create Your Non Profit Bylaws 

A non profit’s bylaws are a set of rules and guidelines by which your non profit operates. These bylaws are what will govern your organization and operation. Bylaws will include the specifics regarding when meetings will be held, voting operations, policy regarding electing officials, and other procedures necessary for your organization’s operation. 

5. Appoint Your Directors

Every non profit organization will need a director. Directors make the financial and policy decisions regarding the organization’s operations. Depending on your state you may need to appoint at least three directors. The director (or board of directors if you have several) works to make sure your organization is running as it should. Within the operation of your organization and depending on its size, the directors can appoint other leaders who will establish strategies, define the goals of the organization, and make sure that the organization runs smoothly overall. 

6. Create a Succinct Mission Statement

After the legal elements of your non profit are established, it’s time to start building your non profit and getting it ready for the public. Your first step will be to create a mission statement. A mission statement is a succinct snapshot of what your organization is about and who it serves. You don’t want your mission statement to be too specific, but you want it to convey to your audience why there is a need for your non profit. 

Your mission statement should also be welcoming to your audience. By being welcoming, it will convey to your audience and community that there is a space for them regardless of who they are. A good mission statement should be honest and genuine and steer clear of buzzwords or sales pitch language.

7. Market Your Non Profit To the Public

Once you have established the foundation for your non profit complete with a mission statement, bylaws, and a board of directors, it’s time to introduce your organization to the public. You can launch your non profit in several ways. You can have an in person grand opening if your organization has a physical location. You can also launch a virtual opening by spreading your organization’s information online. 

Final Thoughts

It’s important to do the heavy work of thinking about your non profit and deciding if there’s a need for it before you spend additional time, money, and energy into legally forming your non profit. But once you do get over the hurdle of legally establishing your non profit, the rest is where the fun lies as you get to realize your creative goals all while helping your community.

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