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Starting a Nonprofit Organization

© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC, experts in
nonprofit organizational development and capacity building.
Adapted from the Field Guide to Developing, Operating and Restoring Your Nonprofit
Board.

Applies to nonprofits unless otherwise noted.

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

Sections of This Topic Include:
Each of the links listed immediately below is a link to a section later on, farther down
below, in this Web page.

Starting Your Nonprofit
Should You Really Start a New Nonprofit?
What Do You Mean by "Starting a Nonprofit"?
Feasibility Study -- "Should I Really Start a New Nonprofit?"
Consider Fiscal Sponsorship (another nonprofit to support your tax-exempt status,
finances, etc.)
Do You Need a Lawyer to Start Your Nonprofit?
Nonprofit Incubators (help new nonprofits by sharing facilities, equipment, etc.)
Checklists to Help You Register Your New Nonprofit
Table of Reminders for Registering Your New Nonprofit
Something to Avoid: Founder's Syndrome

Major Resources
Free Booklets -- "Guide to Management, Leadership and Supervision" and "Program
Design & Marketing"
Free Nonprofit Micro-eMBA -- (self-paced, online nonprofit dev. program)

General Resources
Sources of Assistance to Help You Develop Your Nonprofit

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.
New Year's Resolution -- No New Nonprofits Unless ...

Also see the article:
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.
Preparation for Planning a Business 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 is 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 include 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,
eg, 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) 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 a the 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 Getting and Using a Lawyer

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.
What is a business incubator?

Checklists to Help You Register Your New Nonprofit
in 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 the 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.

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 BoardSource's "Q & A" 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.

4. Once you've got a basic sense of the major steps to form a nonprofit, review Eve Rose
Borenstein's comprehensive and sound advice about Legal Needs Relative to Nonprofit
and/or Tax-Exempt Status of New Organizations in the USA. This information is quite
complete and covers incorporating, nonprofit vs tax-exempt, qualifying for tax-deductible
dollars, how to apply for tax-exempt status, and much more. Also see her sample Articles
of Incorporation. (NOTE: There are more samples of articles of incorporation, along with
bylaws, at Articles of Incorporation at Corporate Bylaws.)

Sites with Numerous Checklists and More Sources of Information
The About.Com (previously Miningco) offers a list of articles in regard to starting a
nonprofit organization.

The Nonprofit FAQ provides similar information that's worth reviewing as well, to
enhance what you've learned so far. They summarize many resources in Where to Start.

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 a brief mission statement that describes the
draft mission charitable purpose of your new organization; your
here
statement board should soon review it during strategic planning
and authorize the statement
(if you plan to incorporate in your state) recruit at
least enough board members to meet state
recruit board requirements for a corporate board (contact state
here
members attorney's office); if you don't plan to incorporate,
consider an informal advisory board to help guide
you
get a lawyer to help you file articles of incorporation (if you plan here
to incorporate), application to 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
get banker and get a bank account; seek bank that understands needs
here
bank account of new, small nonprofit
get an accountant or other finance expert to help you
set up basic bookkeeping system; when you get a
get accountant here
board treasurer, then he/she can be very helpful in
this regard
you may need liability insurance, property insurance,
get insurance
and when you hire staff: worker's compensation, here
agent
health and life insurance benefits, etc.
draft articles of these specify legal description of your organization
incorporation and power to the board; you'll need to draft these
and get board only if you plan to file for incorporation with your here
approval state; the Board should approve the Articles before
submission
draft bylaws these specify how the board will operate and
and get board configure the staff; some states require these; some
here
approval of this information will be in the Articles if you file
Articles; the board should approve the bylaws
file for register for incorporation including submitting your
incorporation drafted and approved Articles (if you plan to secretary of state
with state incorporate); may need to submit bylaws, too; also or secretary of
find out what various reports the state wants from commerce
nonprofits
file for federal apply for tax-exempt status (to be exempt from
tax-exempt paying federal taxes); board should approve this here
with IRS filing before submission;
get state tax once you get IRS exemption, file for any state tax state attorney,
exemption exemptions attorney general or
from state secretary of
commerce
get property once you get IRS exemption, file for any state tax local city tax
tax exemption exemptions assessor
from city
get solicitation if you plan to solicit funds, your city may require a local city offices
license solicitation license
get mail permit this permit gives you a discount on bulk mailings local post office
get federal (do this once you start to hire employees) get federal secretary of state,
employer employer number to withhold income and FICA secretary of
number (once you hire employees)
commerce

get do this once you start to hire employees secretary of state,
unemployment secretary of
insurance req's 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 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 to staff the organization, train
employees, manage performance of employees and develop 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
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 Resources
for Nonprofits
Basic Guide to Management and Supervision
Basics for New Managers and Supervisors to Manage Themselves

Helpful Guidebooks for You
Much of the information in this topic was adapted from the following guidebooks:

• Field Guide to Developing and Operating Your Nonprofit Board of Directors
(includes information to start nonprofit in USA and Canada)
• Field Guide to Nonprofit Program Design, Marketing and Evaluation (how to
build and operate highly effective programs)
• Field Guide to Consulting and Organizational Development With Nonprofits