USA: Establishing a Non-Profit Organization
If you’ve been thinking of establishing a non-profit organization, don’t let anything stand in your way. Read on for important tips on how to go about making your initiative a reality.
After reviewing our other business structures for starting up in the United States, you may still be curious about establishing a non-profit organization. As the name suggests, non-profits are business structures that exist to serve some aspect of the public good rather than pull a net profit as a company. Indeed, money that’s made by non-profits is donated and invested back in the company and its actions and services. In a hard capitalist logic, this form of business can seem a bit confusing. But ultimately, there are plenty of large corporations that also foster non-profit organizations within their overall business structure, and a establishing a non-profit is a perfect option for anyone wishing to get involved with charity, community-building, social welfare, and more. Here, we’ll run down how to go about registering your non-profit so you can start giving back as soon as possible. And keep in mind that even non-profits need a solid business and financial plan. You can find our business plan templates here for free download, and be sure to check out our rundown of common business structures if you’re looking into how to launch your company !
Here is where non-profits resemble our previous sections; you’ll need to choose a business name and make sure that it doesn’t infringe upon past copyrights or trademarks. Check out the database here.
You’ll also need to file your articles of incorporation, or your charter document, and pay a filing fee for your state. Your articles of incorporation should include your registered agent, or the person who will receive government and legal paperwork on behalf of your non-profit (this can be an individual or a company), the non-profit’s legal address, the names of its incorporators as well as their names and addresses. Finally, your statement of purpose will define what exactly establishing this non-profit seeks to accomplish. You’ll also need to justify that your enterprise is specifically not-for-profit, will not engage in prohibited political activities or lobbying as such, and has a plan for distribution of assets upon dissolution.
Bylaws and Board of Directors
Then, you’ll lay down your non-profit’s bylaws, which must include a coherent compensation policy, and select your board of directors. Your bylaws should include the following information:
- The number of board members and their individual responsibilities
- Rules and procedure for meeting-holding and decision-making (elections)
- Conflict of interest policies
- Distribution plan for grant money
- And more
Selecting your board of directors is always an important task, but it’s especially essential for a non-profit. Your board members should cumulatively possess not only a host of different skills (financial, marketing, legal, etc.), but a deeply-held conviction that your non-profit will be contributing to the public good and a dedication to seeing your organization carry out its mission. Value-aligned directors are absolutely essential to the growth and maintenance of any charity, and you should take this under careful consideration when choosing directors and the potential board before establishing a non-profit.
You’ll need to file with your State Charity Office, whose state-by-state directory can be found here.
You’ll then need to file as a charity with the IRS. Because you’re establishing a non-profit, you should be tax-exempt. You can find a guide for filing for tax exemption with the IRS here in their guide on applying for tax-exempt status. Keep in mind that while 501(c)(3) charities are the most common denomination, you’ll need to pay close attention when you register with the IRS, because you might be more of a 501(a) or a 501(c)(4). 501(c)(3) organizations file Form 1023 or 1023-EZ are Charitable, Religious, or Educational in their aim. Social Welfare Organizations, or 501(c)(4), will file form 8976 and 1024-A, and other organizations, 501(a), will need to refer to Form 1024. As you can see, the process changes significantly based on what kind of non-profit you are running, and you’ll need to carefully select the form that best corresponds to your non-profit when applying for tax-exemption.
Most importantly, keep in mind that just because you are starting a non-profit does not mean you will automatically be exempt from federal taxes. For this, your application with the IRS is an important step to which you must pay close attention, and don’t hesitate to check out the IRS’ page on different sorts of tax-exempt businesses, from charities to fraternal associations.
Defining Your Sources of Revenue
Once you’ve managed to score your tax exemption, you’ll need to focus on one of the most important aspects of establishing a non-profit — ironically, making money ! Defining your sources of revenue is essential to your being able to plan how exactly your non-profit is going to contribute to the public good and better the sector with which you are concerned. Many non-profit organizations turn to the following inlets for revenue:
1. Member fees
Many non-profit organizations have “members,” which is a schema in which people who sympathize with the non-profit’s agenda will pay what is usually an annual membership fee. This fee often grants members access to things like your newsletter, raffles and contests, events, campaigns, and a welcome-package of souvenir merchandise that shows your support (think of the World Wildlife Fund pens you might have found around your classrooms as a child, for example). This expression of solidarity is good for building awareness of your non-profit and makes your members feel included in a cause.
Of course, establishing a non-profit is an endeavor that relies heavily on charitable donations. Keep in mind that soliciting donations, however, often costs money in itself. Who is on your phone lines, canvassing neighborhoods, and more? At first it will probably be you, but as your non-profit grows, you’ll need to enhance your donation sollicitation. Also keep in mind the huge difference between one-time donations and monthly donations. A smaller monthly donation from a potential donor is better for the vast majority of non-profits, because it’s a more reliable income than simple one-time gifts, even if they are larger. Go for sustained over one-time donations, and keep in mind the cost of your fundraising compared to its fruits.
Applying for government grants and grants from other associations is essential to establishing a non-profit. Grant-writing is a skill in itself that often requires heavy research, excellent writing and communication skills, and a cause that visibly merits public investment. If you aren’t a specialist on grant-writing, it’s worth looking into hiring someone who is. People who have worked in academia, archives and libraries, and publishing and literature are great choices for grant-writers, as well as people who are familiar with the bodies that have them available.
4. Fees for Goods and Services
Objects like merchandise (tshirts, mugs, and the like) can be great for establishing a non-profit. People who sympathize with your non-profit’s cause like to show their solidarity, and merchandise can be a great way to help them scratch this itch. Invest a bit in catchy visual design for the merch you’ll hawk, and who knows, you might even strike a trend !
You need to keep in mind that certain states require licenses for fundraising, which is obviously a huge source of revenue for non-profit organizations. In fact, for providing any good or service, you’ll need to check with your state and your city to see what laws are in place for sollicitation, events, and more. Part of the difficulty and the beauty of establishing a non-profit in the United States is specifically how detail-oriented one must be in checking out state and municipal regulations — but when you pick right, it can also be a huge help to your company. Be sure to check out our other articles on starting up in the USA, and don’t hesitate to leave any questions or suggestions in our comments section !