[Start-Up Help] A QuickStart Guide to Starting Your Nonprofit in 2020
If you are inspired to serve your community and help others, you might establish a nonprofit. A nonprofit organization gives you the ability to raise funds and provide a structure for accomplishing your mission.
Consulting a DC fractional general counsel early in the process can help you ensure that you overlook none of the vital steps for starting your nonprofit. Having a general counsel for your nonprofit can also ensure future compliance and avoid potential legal issues that may arise as you operate your nonprofit.
Five Key Steps for Creating Your Nonprofit in 2020
Step One: Mission Statement And Funding
You need a detailed mission statement to guide you as you establish and operate your nonprofit. Your mission statement should identify a need within the community and propose a strategy for meeting that need. A good mission helps you clarify what you will focus on as you set out on your journey to help others. It also sends a message to the public and encourages others to support your organization and your work.
You need money to accomplish your goals. Therefore, you must have a plan for raising funds during startup and in the future. Developing a detailed business plan before beginning your nonprofit can help you think through critical financial matters, such as startup costs and operational costs. It also helps you identify sources of income to fund your nonprofit.
A detailed business plan for a nonprofit typically includes:
Executive Summary
Programs and Services
Organizational Structure
Operational Plan
Marketing Plan
Fundraising and Financial Plan
Organizational and Management Team
Appendix
The startup costs to incorporate a nonprofit organization may only be several hundred dollars, but there are other costs to be considered. For instance, will you need office space, staff, supplies, licenses, or permits to provide services to the community? Your business plan identifies what is needed and includes a fundraising plan for obtaining the funding and other items you need to accomplish your mission statement.
Step Two: Incorporating Your Nonprofit
Incorporating your nonprofit is very similar to incorporating a for-profit company. The first step is choosing a name for your nonprofit. The name should not be too similar to another company’s name, and it should sound pleasant when you say it out loud. A nonprofit’s name conveys specifics about the organization so you can effectively market and brand the organization. Check to ensure that the name can be trademarked. You may also want to search the internet for the name (including initials) to ensure that you are not choosing a name or including words in the name that have another meaning online.
Once you have a name for your nonprofit organization, it is time to file the required forms for incorporating it. Forms for incorporating a nonprofit vary by state. You can obtain the required forms for incorporating a nonprofit from the state agency that oversees corporate formation (typically the Secretary of State). The fees for incorporating a nonprofit also vary by state.
Incorporating a nonprofit may vary slightly by state, but the basic steps to incorporate a nonprofit include:
Choosing your name
Reserve your name
File Articles of Incorporation or Certificate of Incorporation
File other forms required by state law for incorporating a nonprofit
Pay required state fees for incorporation
Depending on your situation, you may not need to incorporate in the state in which you reside or in which the nonprofit will be located. Because state laws vary, you should research which state offers your nonprofit the best benefits in the long-term. A DC fractional general counsel can help you research various state laws to determine which state provides the best benefits for your nonprofit. An attorney can also help you navigate the various state agencies to ensure that you have all the required forms and documents to incorporate your nonprofit.
Incorporating your nonprofit is not difficult, but it is a necessary step to ensure that you have a legal entity that can qualify for tax-exempt status through the Internal Revenue Service (IRS).
Step Three: Filing For Tax Exemption
After you incorporate your nonprofit organization, the next step is applying for tax-exempt status with the IRS. Your organization must be a corporation, trust, or association to qualify for tax-exempt status. While you might qualify for tax-exempt status without incorporating, it is typically best to incorporate the nonprofit to protect volunteers, staff members, and others from personal liability.
The IRS requires nonprofits to complete and file specific forms to apply for tax-exempt status. The IRS forms required vary depending on the type of organization. The fees for applying for tax-exempt status vary depending on which form you complete. However, you should not choose the form based on the lowest fee. The form you choose should be based on the applicable laws and regulations for your nonprofit. The IRS provides information about applying for tax-exempt status on its website.
Having legal assistance during this step in the process can be valuable to ensure that you receive your tax-exempt status. Tax-exempt status can be a significant factor in fundraising. Securing tax-exempt status for your nonprofit means that your organization will not pay taxes on funds raised by the organization. However, it also means you can tell potential donors and contributors that their donations and contributions will be tax-deductible. Writing off charitable donations can be an incentive for individuals and companies as they consider donating money to your nonprofit.
You must also file for nonexempt status with your state and local tax authorities. Filing and reporting requirements for nonprofits vary by state. You need to research your local and state requirements for nonprofits to ensure you file the required forms to obtain tax-exempt status in your state and comply with all other requirements for nonprofits. For instance, you may have to register before you can engage in certain fundraising activities or other activities as a nonprofit. You may also need to secure various permits or licenses or purchase workers’ compensation insurance. If you are unsure what requirements are necessary to comply with state law, discuss the matter with an attorney before beginning setting up a nonprofit.
Do not forget that you could lose your tax-exempt status. Ongoing compliance to retain your tax-exempt status is also an important step in operating your nonprofit. Knowing and understanding federal, state, and local compliance requirements for nonprofits is crucial. Losing your tax-exempt status could mean the end of your nonprofit.
Step Four: Draft Bylaws
The bylaws are another important document for a nonprofit organization. Your bylaws govern how the nonprofit functions at its highest levels. Basic components of a nonprofit’s bylaws include:
Organizational Purpose
Governance of the Nonprofit
Membership
Board of Directors, including choosing a board, terms of service, removal, succession, etc.
Officers, including selection, duties, responsibilities, etc.
Meeting Requirements
Committees
Resolution Policy for Conflicts of Interest
Amendments to the Bylaws
Bylaws are an internal document of the nonprofit. However, some states require corporations to file a copy of the bylaws when they incorporate. Also, it can be helpful with transparency to make your bylaws available for public viewing upon request. Potential donors may want to review the bylaws before contributing to your nonprofit.
“Board members need to believe in your nonprofit’s mission and be able to sell that mission to other individuals and companies. ”
— Steve Thienel
Board members must follow the procedures outlined in the bylaws. Therefore, all board members should read and understand the bylaws. The bylaws need to be reviewed periodically and updated to ensure they are relevant to the current focus and mission of the nonprofit.
Step Five: Selecting Board Members
Selecting board members for a nonprofit involves choosing individuals who can bring specific skills, talent, knowledge, expertise, and other assets to the organization. Your board members help guide the nonprofit in the direction necessary to accomplish its mission statement. Your board should share the same vision for assisting the community. Board members need to believe in your nonprofit’s mission and be able to sell that mission to other individuals and companies.
The qualities of a good board member vary. Generally, you are looking for board members who are professional and have significant networking abilities. You also want board members who have experience in fundraising, financial management, and business management. A diverse board can help ensure the success of the nonprofit by bringing a variety of skills and experience to the organization.
Do’s and Don’ts of Starting a Nonprofit
Some do’s and don’ts that can be helpful to remember when starting a nonprofit include:
DON’T forget to conduct research before beginning the nonprofit. Even though you are organizing a nonprofit, there has to be a need within the community for the services or programs you intend to provide. If there is not a need, there is no reason for the nonprofit.
DO have a detailed fundraising and financial plan. Your nonprofit relies on donations, contributions, and grants. You must have a plan in place to raise funds before you launch your nonprofit. Operating a business is expensive. You cannot help the community if you do not have funds.
DO understand all compliance requirements to maintain your tax-exempt status. Qualifying as a tax-exempt organization is only the first step. You must maintain your tax-exempt status. If you do not understand the compliance requirements, seek competent legal counsel immediately to avoid losing your status in the future.
DO use a formal process for setting and approving compensation. The compensation you pay to the executive director and key employees should be comparable to the amounts paid by other organizations of a similar size and activity. The amounts paid to these individuals are available to the public. Therefore, having a procedure in place for approving compensation that demonstrates fairness can help instill trust in your nonprofit.
DO have a marketing campaign for your nonprofit. As with any business, you need a good marketing plan in place to generate funds for your organization. A marketing plan that utilizes social media can be very effective, given the use of social media in spreading information about causes and charities. However, your marketing campaign should be based on a clear understanding of your audience and potential donors.
DON’T solicit any donations or contributions using the words “nonprofit” or “tax-exempt” until you have received confirmation of your tax-exempt status.
DO have excellent record-keeping procedures and practices. Your nonprofit’s financial records are of great interest to donors and the IRS. You need to ensure that you maintain record-keeping practices that ensure your books and records are always current and accurate.
DO set up volunteer guidelines and practices. Volunteers are an asset for a nonprofit, but you also need clear policies in place to protect your volunteers and your organization. Consult with an attorney to determine what waivers and other documents you may need for volunteers to sign.
DO seek publicity. Distribute press releases to help general public interest in your nonprofit. Creating positive public interest in your nonprofit can translate into volunteers and donations.
DO keep your focus on your mission. It's easy to become immersed in the daily operations of the nonprofit. However, you need to review your mission statement often to ensure that the direction of your nonprofit has not strayed from your goal of helping the community.
Get Help Setting Up Your Nonprofit in 2020 from a DC Fractional General Counsel
If you are ready to set up your nonprofit in 2020, a DC fractional general counsel can help. A general counsel has experience in numerous areas of business law that impact the formation and operation of a nonprofit organization.
Working with a DC fractional general counsel can help ensure that your nonprofit complies with all federal, state, and local laws for tax-exempt status and other legal requirements. However, working with a general counsel can also ensure that you take the necessary steps to protect yourself, your staff, and your volunteers from potential legal liability now and in the future. Contact experienced business attorney Steve Thienel today.
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