Five Essential Steps to Create Your Nonprofit

What are the five essential steps to create your nonprofit? Becoming a nonprofit requires many formalities. The IRS strictly monitors and regulates nonprofits requiring correct provisions in your articles of incorporation, bylaws, and complicated policies like protecting against conflicts of interest.

1)    Identify the Mission of Your Nonprofit

Having a mission that is for the betterment of society will help inspire growth in your nonprofit. The IRS also requires this. To become a 501(c)(3) nonprofit, your organization must work to further an exempt purpose.

There are seven types of exempt purposes to create your nonprofit:

1. Religious to meet the religious exempt purpose the IRS lays out a two-part test. First, that the particular religious beliefs of the organization are truly and sincerely held. Second that the practices and rituals associated with the organization’s religious belief or creed aren’t illegal or contrary to clearly defined public policy.
2. Charitable is defined broadly and is meant to be interpreted as such. Working to help the poor or distressed or of the underprivileged. Erection or maintenance of a public building, monuments, or works; lessening of the burdens of the government;.
3. Educational exempt purposes include the instruction or training of individuals for the purpose of improving or developing their capabilities; or the instruction of the public on subjects useful to the individual and beneficial to the community.
4. Testing for public safety, includes the testing of consumer products, such as electrical products, to determine whether they are safe for use by the general public.
5. Scientific: tax-exempt organizations looking to further a scientific purpose must conduct research in the public interest and made available to the public on a nondiscriminatory basis.
6. Literary purposes included for tax-exempt organizations often are bookstores or publishing houses who have a primary purposes of charity.
7. Prevention of cruelty to children or animals.

Don’t be afraid to reach out for help. We can help you decide which category best applies to your mission.

2) Create Articles of Incorporations and Bylaws for Your Nonprofit

The articles of incorporation and bylaws are the lifeblood of your nonprofit. Without these pieces of legislation, your company would not only fail the IRS requirements for becoming a tax-exempt organization. But would leave your corporation without procedures and operation strategies. These documents contain general information about your nonprofit, like the name and the registered agent. They also contain essential information like how many directors will be on the board or if the corporation will have members. Directors determine the mission and direction of a nonprofit and any high-level decision that needs to be made for the nonprofit. Members of a nonprofit are often the people involved in helping the nonprofit in achieving its goal. Members do this by paying dues that provide the nonprofit with a steady stream of income. While the articles of incorporation and bylaws sound like corporate formalities, they, without a doubt, are a vital part of a successful nonprofit.

3) Incorporate Your Nonprofit

Incorporation is a process that formally recognizes your entity as a corporation. Corporations are companies or groups of people authorized to act as a single entity and recognized as such in the law. Incorporation is a mandatory step to becoming a nonprofit. This step requires an agent to file articles of incorporation with the Secretary of State. Generally, secretaries of states require a bare minimum article of Incorporation for incorporation.

In contrast, nonprofits need more detailed documents than required by Secretaries of States. For example, in the articles of incorporation, the IRS requires a provision of where the nonprofit’s assets go upon dissolution. The IRS will require that upon dissolution; the assets are transferred to a qualified nonprofit. As well, the IRS will require bylaws to be approved by the board. These bylaws need to have provisions that preclude the nonprofit from being involved in political campaigns. Nonprofits are required to have conflict policies that prevent board members from being enriched by the nonprofit. Documents that satisfy these requirements can be long and complicated. If you are worried about your nonprofit’s documentation, you should enlist professional help.

4) Set Your Nonprofit’s First Organizational Meeting

Your organizational meeting will be your first meeting as a board of directors. This meeting will set the corporation’s tone for you and your fellow board members. It requires a majority of your initial board of directors as filed in the articles of incorporation. You will need to adopt your bylaws at this meeting and ratify the agent’s actions, such as filing for incorporation. In addition, you will approve legal documents like your 501(c)(3) tax-exempt application.

5) File IRS Form 1023 to Become a 501(c)(3) Tax-exempt Nonprofit Corporation

At this point, you have your mission and organizational documents. All that is left is to file your 1023 application for tax-exempt status with the IRS.

Note:

File your application for nonprofit status within twenty-seven months of the end of the first month of creation.

There are two versions of the 1023 tax-exempt application.

1. 1023-EZ: Allows corporations that have gross revenue below $50,000 and assets of $250,000 or less.
2. 1023 Long Form: Some requirements are financial records of the corporation, projections of financial information for three to five year. How your nonprofit plans to raise money. As well, as policies and procedures for how funds will be spent and disbursed within the exempt purpose.

Both the 1023-EZ and Long-form applications require extensive documentation.  It is common for 1023 applications of both varieties to be hundred-page documents.

If You Think Doing It Correctly is Expensive, Try Doing it Wrong…

As you think about all the great things your nonprofit will do, you also need to protect yourself and your new company against unforeseen errors.  Now is the time to ask what can go wrong in this application and in incorporating this idea into a viable business.  Get professional support.

Fill out our contact form and we’ll put you in touch with a world-class business law attorney.  Stay focused on your idea, get professional legal support.