Tuesday, May 14, 2013

Starting a nonprofit - An Overview

From an email:

"We just filed our 501(c)(3) paperwork and it was rejected because we are not a corporation.  It costs at least $800.00 for us to register that way in our state. What can we do?"

Short answer - form a nonprofit corporation in your state and get it registered.

There are certain steps you HAVE to take to become a legal federally recognized nonprofit.  You need a board of directors. You need a mission statement. You need bylaws that follow the laws of your state, and certain other legal statements such as a nondiscrimination statement. You need a focus or field that embraces the public good, not just a narrow personal or political focus that does not serve a greater public good.
After you have put those essentials in place, then you have to register and pay whatever fees your state requires to incorporate. If you are not qualified to understand the legal aspects of both forming and running a nonprofit, you need some sort of legal and financial guidance.

Once you have all of that in place, and you have received your state notice of acceptance as a nonprofit corporation and filed for tax exemption in the state THEN you can file the paperwork with the Internal Revenue Service. That normally takes from 4 to 12 months to come through, and you can NOT advertise any sort of tax deductibility for donations until you receive it.

IMPORTANT: For the most part you will not considered for grant funding for a minimum of one to three years so you will need to put together a fundraising plan and a strategic plan or at least a series of goals for fundraising.  While you are in that phase you need to have an accounting program and year-end financial statements, because all grants require a financial history, budgets and audited financial statements.  It doesn't matter if you have $1,000 in receipts or $100,000 - you have to be able to show your verified revenues and expenditures to apply for grants. You must file a 990 (tax report) each year, even if it is the postcard format. 

There are various types of corporate types that are accepted by each state, and there is no universal rule that determines that, so check with an attorney and/or accountant that specializes in nonprofits in your state.

State law may determine how many members you must have at a minimum.  Some allow a single entity, some require three or even more board members. Your bylaws will need to include how often your board meets, as well as other common requirements. The board members are legally accountable for any professional or financial malfeasance, so your nonprofit needs to have errors and omissions insurance applicable to their roles. Your nonprofit board is also accountable for ensuring that the officers and key employees do not commit illegal acts, and all of them need to have a background check performed and kept on file.

There is a lot more to this nonprofit thing than many people understand, and there are no shortcuts. If all of this sounds too expensive and kind of scary, consider volunteering at other nonprofits until you can absorb the knowledge and expertise needed to start and operate your own nonprofit. Failing to understand and follow the process and account for all the costs is a waste of your time and money.  

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