Table of Contents
- What is the procedure for starting a nonprofit organization in a state of the U.S.?
- What are the next steps that the nonprofit must take after its formation?
- How tax exemption for the nonprofit can be applied for?
America has over 1.5 million nonprofit organizations which touch millions of lives and advocate causes which impact the lives of almost everyone around the country. Nonprofit organizations advance their missions for causes that include helping the elderly, programs for children, addressing homelessness, education, the environment, and even include charities that enrich people’s lives through the arts.
Besides the care they provide through their actions, nonprofit organizations contribute more to the U.S. economy than most other industries. They employ approximately 12.3 million people for a total annual cost of more than $826 billion. This amount includes employees’ salaries, benefits, and payroll taxes.
What is the procedure for starting a nonprofit organization in a state of the U.S.?
In order to be designated as a 501(c)(3) nonprofit in any state and to be tax-exempt according to federal laws, the applicant needs to follow a simple procedure which may vary slightly, depending on the state. The process includes 4 simple steps:
Choosing a name
Each state has different rules for how a nonprofit can be named, but it will need to reflect the mission of the organization and must have a distinct difference from other organizations or corporations.
At this initial stage, the nonprofit organization will also have to register its domain name and its professional email account.
Assigning a registered agent
Registered agents are the point of contact for the nonprofit organization in the state that it’s active in. At this early stage, one needs to be assigned, and it’s always better than it’s not someone from within the charity. This agent will be responsible for receiving legal documents on behalf of the nonprofit. Most states have registered agent services that are authorized to transact business in their state.
Appointing the board members and officers
This is an important step when forming a nonprofit since the directors are responsible for managing all of the organization’s operations.
The board of directors is formed to ensure that no individual has full authority and all policies and management decisions are made by the full board of directors.
IRS 501(c)(3) status requires at least 3 directors to be elected, and these cannot be related to each other.
Elected officers are each given responsibilities and each one has the authority to execute the responsibilities of their job description. The number of officers required will depend on the state where the nonprofit is registered, and these make up the organizational structure of the nonprofit. In some states, the officers may also serve on the board of directors, as long as the organizational bylaws of the nonprofit allow it.
Submitting the Articles of Incorporation
The required documents for the formation of a nonprofit corporation are called the Articles of Incorporation, and these have to be submitted to your state. Once these are accepted the nonprofit has been officially formed.
What are the next steps that the nonprofit must take after its formation?
The following steps are very important, even though they are optional. A corporate record book should be started where all important documents are kept, including meeting minutes.
Drafting of policies and bylaws
This should be completed before the first organizational meeting.
These are the rules on how the organization will be governed and run. This includes the role of the directors and officers, the election of these positions, voting procedures, and how meetings will be held. Guidelines are also needed about keeping meeting records, handling disputes, and future bylaw amendments.
Conflict of interest policies
This is a set of rules to ensure that all decisions are made with the best interests of the organization at heart and not those of any individual.
The first official organizational meeting
At this meeting attendance is taken, temporary positions are assigned, and adoption of bylaws and policies is undertaken. Minutes should be kept and signed by all directors in attendance.
Applying for an EIN
The nonprofit will need an Employment Identification Number (EIN), which is required for employing staff, opening a bank account, and submitting tax returns.
Opening of a bank account
Banks often have certain document requirements; the nonprofit should check which are needed when applying for the opening of a bank account.
How tax exemption for the nonprofit can be applied for?
Federal tax exemption for nonprofit organizations needs to be applied for — either online or by mail. There is also a fee involved. The types of forms required differ according to the type of nonprofit and its income.
In general, the paperwork that needs to be submitted with the application is the Articles of Incorporation, the bylaws and conflict of interest policy, and the EIN number. Interested in the above procedures to start a nonprofit?
The process can be made much easier by TRUiC’s free guide, where all the information you need can be found in one place, including guidelines, templates, application forms, and much more.