How do I start a nonprofit organization?
Table of contents:
Step 1: Are you ready to start a nonprofit?
Step 2: Do your homework
Step 3: Build a solid foundation
Step 4: Incorporate your nonprofit
Step 5: File for 501(c)(3) tax-exempt status
Step 6: Ongoing compliance
Starting a nonprofit organization can be an inspiring way to give back to your community and help those in need. However, it is important to understand all of the steps involved in this process before moving forward. Growing and sustaining a nonprofit may take years of effort and a great deal of determination.
Step 1: Are you ready to start a nonprofit?
A great first step is Candid's course, Is Starting a Nonprofit Right for You?, offered as a self-paced online course, webinar, or video. Watch now:
And see how ready you are to start a nonprofit with our Nonprofit Startup Assessment. When you finish this free 75-point checkup, you can download a report of your results, which will include resources to build your skills. Start now.
The information provided in this article is intended to offer general guidance on how to form a nonprofit organization. Please note that specific steps may vary for each state, and we recommend consulting with a legal or tax professional for detailed assistance.
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Step 2: Do your homework
Conduct a needs analysis
Find out if organizations (nonprofit, for-profit, or government) are already doing the same or similar work in your community. It will be harder to get support if you are just duplicating existing services rather than improving or adding to them. Also find demographic or population data that shows a need for your services, and explain how that need is not being met. Where can I find demographic information about my community?
Is a nonprofit right for you?
Public charities must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3) of the Internal Revenue Code. If you want to start a nonprofit so you can get grants to pay yourself a salary, stop now and find another option. Realistically, many new nonprofits aren't even ready or eligible to get grants. Learn more about whether a nonprofit is right for you:
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- Can My Business Be a Nonprofit? (recorded webinar)
- What are the advantages/disadvantages of becoming a nonprofit organization? (Knowledge Base Article)
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Know the alternatives
Forming a new nonprofit might be the most complicated way to act on your passion to serve your community. The biggest challenge for most new nonprofits is to develop and maintain reliable income streams. Estimates vary, but most experts agree that less than half of nonprofit startups survive beyond five years. Of those that survive, perhaps one-third are in financial distress.
Consider alternatives that can let you essentially operate as a nonprofit but with far less effort and cost. Thus, you can focus your efforts on serving your community right now while you develop experience and support that will serve you well if you eventually decide to form a separate organization.
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Step 3: Build a solid foundation
Draft your mission statement
Developing your mission statement is a critical first step. It communicates your nonprofit's purpose, what groups it serves, and how it will serve them. Every decision and action in your organization should support and further your mission. Where can I learn about nonprofit mission statements?
Write a business plan
Just as with a for-profit business, a business plan can help a nonprofit describe how it intends to achieve its mission in more specific details. It also can be used to outline a new project or venture. How do I write a business plan for a nonprofit organization?
Develop your board
As your nonprofit's governing body, your board fulfills a variety of roles and legal responsibilities. In order to carry out these duties effectively, the board will change as your organization grows and matures. While recruitment is an important step in this process, a systematic approach to board development, including orientation, training, evaluation, and the cultivation of prospective board members, is critical to ensuring its long-term success.
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Step 4: Incorporate your nonprofit
Now that you have reached this step, it's time to find resources that are specific to your location. The best place to start is by clicking on our Nonprofit Startup Resources by State.
Why should you incorporate?
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- Having a formal structure will give credibility to your programs and services.
- The corporate structure limits the liability of the organization's officers and directors.
- The IRS requires organizing documents and governance policies and procedures that are usually associated with corporations.
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Learn more about how to incorporate your nonprofit. Filings and fees will vary by state. Also note, incorporation registers your nonprofit, but it does not make it 501(c)(3) exempt.
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Step 5: File for 501(c)(3) tax-exempt status
Apply for exempt status with the Internal Revenue Service (IRS). Be aware, the user fee will be $275 or $600, depending on your application method. It also can take 3-12 months for the IRS to return its decision, depending on how many questions the IRS has about your application. Where can I get help filling out my incorporation and tax-exempt 501(c)(3) paperwork?
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Step 6: Ongoing compliance
Register with your state's agency
Each state has an office charged with the oversight of charitable organizations and charitable solicitations (usually the Attorney General). If you plan to solicit contributions in other states, you may need to register there, too.
Prepare for annual reporting requirements
In most cases, an exempt organization must file some version of Form 990 with IRS, depending on its financial activity. Form 990 shows your finances, activities, governance processes, directors, and key staff, and it is open to public inspection. States have their own reporting and renewal requirements, too, and these will vary with each state. Thus, consider tracking your organization's finances and activities in a such a way that will help these annual reporting requirements occur smoothly.
Follow the rules
What activities can jeopardize a nonprofit organization's tax-exempt status?
Learn more now about starting a nonprofit with our free recorded webinars or tutorials:
- Webinar Series for Nonprofit Startup Organizations
- Before You Seek a Grant: A Checklist for New Nonprofits
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Fees to Apply for Exempt Status
Updated annually, these fees must be paid when submitting form 1023 to apply to the IRS for 501(c)(3) tax exempt status.
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Governance and Related Topics - 501(c)(3) Organizations
IRS's recommended policies and practices for nonprofit governance, especially in regards to: Mission; Organizational Documents; Governing Body; Governance and Management Policies; Financial Statements and Form 990 Reporting; and Transparency and Accountability.
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How to decide whether your start-up should be nonprofit or for-profit in 4 easy steps
"An oversimplification" by Ben Wirz, Director of Business Consulting, John S. & James L. Knight Foundation. Slideshow presents basic questions that startups should ask themselves.
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Five-step guide including questions to ask before starting a nonprofit, federal and state filings, policies and procedures that you may want your new nonprofit to have in place, and ongoing compliance.
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Life Cycle of an Exempt Organization
Follow links from this page for various types of nonprofit organizations to find information about how to comply with IRS requirements at every stage of an organization's life, from starting up to termination.
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Harbor Business Compliance
Nonprofit Governance by State
This table lists the board member requirements for nonprofit organizations in each state, including any age or residency requirements for directors, required officer positions, and minimum number of directors.
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Hurwit & Associates
Nonprofit Law Resource Library
Information on nonprofit start-up issues, state filing and compliance, state statutes, international activities, governance and board questions, mergers and affiliations, nonprofit entrepreneurship, charitable contributions and more.
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IRS [PDF]
Publication 4220: Applying for 501(c)(3) Tax-Exempt Status
Contains detailed information on applying for tax-exempt status under section 501(c)(3) of the Internal Revenue Code. The pamphlet includes a listing of related IRS publications, web pages, and other resources.
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Provides comprehensive advice and materials for anyone who is considering starting a nonprofit organization.
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BoardSource [PDF]
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This resource is designed to provide founding board members with answers to some of the most frequently asked questions to consider during the beginning phases in the life of an organization.
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18-minute animated film that explains foundation/public charity classification and public support. Also covers how to calculate public support test. Users can view outline, notes, and advance slides.
Staff-recommended books
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Nonprofit Kit for Dummies
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The Everything Nonprofit Toolkit: The all-in-one resource for establishing a nonprofit that will grow, thrive, and succeed
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The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization
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Starting and Managing a Nonprofit Organization: A Legal Guide
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Starting & Building a Nonprofit: A Practical Guide
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