The most common type of nonprofit is the 501(c)(3). There are other iterations of the nonprofit but for the purposes of this article, we'll examine the nonprofit corporation as described in section 501(c)(3) of the Internal Revenue Service tax code. The 501(c)(3) is designed to provide some type of charitable service to the community, the state or nation. The 501(c)(3) nonprofit is responsible to comply with federal and applicable state laws, rules and standards for reporting, managing and operating the organization

There are five stages you will pass through on the way to creating a nonprofit organization.

I. Research

Before you even try to start up a nonprofit organization, it's important to ask whether a new nonprofit is even needed. Ask the following questions, then research the answers:

  1. Is there a need for the services or programs this nonprofit would provide? Surveys, reviews of newspaper, magazine and media as well as extensive networking within the local nonprofit community will help you decide whether the perceived need for a new nonprofit is sufficient to justify establishing another nonprofit organization to compete for already scarce philanthropy.
  2. Can this service or program be supplied by a self-sustaining for-profit corporation. One advantage to doing such a project through a for-profit company is that, if there is a demonstrable need for whatever it is your companys mission to provide, it's likely that someone would be willing to pay for it. As a for-profit business owner, the founders have far more control as to how programs are designed and operated. Nonprofits answer to public boards of directors. There's no law that a for-profit company can't reinvest all its profits in the company. Acquiring donations, grants and government contracts requires the same level of effort that obtaining loans or investment does.
  3. Is someone already doing this? If so, they may be doing it poorly. You may be able to join the existing nonprofit's efforts, reorganize the organization, get on it's board or volunteer to make it work better or boost its fund-raising. Often it's easier to fix an existing program than to start over with a competing program. Remember this. Funders for nonprofits really hate duplication of services and seldom fund programs that duplicate what someone else is already doing.

II. Identify Resources:

Once you've determined that there is a legitimate need for an organization to do what you would like to see done, it's time to ask some questions:

  1. Who should be involved. Who are the stakeholders in this enterprise? Do you have broad community support? Are there enough who believe in this to form a board of directors and create a cadre' of volunteers to make things happen. Do you have access to lawyers, accountants and management professionals to help you?
  2. What do you need to get this going? Take a look at the local economy, attitudes toward philanthropy and local enthusiasm for the project. How much money will you need? Will you be able to raise it?
  3. Can you create a viable business plan including a realistic initial funding strategy, a 3-year budget and marketing, fund-raising and resource development plans?
  4. What other agencies and organizations will be your partners. Who's available to form your core staff.
  5. What paperwork do you have to file and when?

III. Create the Core

  1. Form a board of directors. Invite stakeholders you have identified to be a part of the organization and hold a board meeting to begin organizing formally.
  2. Develop a clear mission statement. There are tons of excellent resources on the Internet to help you develop a good mission statement. Don't neglect doing this. The mission statement informs every step of the process and keeps you from wandering off-task.
  3. Draft bylaws, develop a budget, hire a director and set up a financial record-keeping system.
  4. Raise startup funds.

IV. File the Paperwork

Every state has different requirements when it comes to incorporating as a nonprofit corporation. Having a lawyer on your board helps make this part easier.

  1. File your incorporation documents with the state first. You must be incorporated in your state before you can apply for your IRS 501(c)(3).
  2. Obtain an employer identification number from the IRS. This is just the number they give you to identify your company for tax purposes.
  3. File an application for a 501(c)(3) determination letter from the Internal Renue Service. It can take several months to a year before you get the letter back. In the meantime you can go ahead and operate for all intents and purposes as a nonprofit.You just won't get the tax benefits until you have the IRS letter in hand.
  4. File an application with your state to be a tax exempt entity. You'll have to give them a copy of your IRS number.
  5. Setup a bank account so your organization can pay legal fees, license fees or whatever other bills you have to pay.
  6. Obtain any local permits or licenses you need to fund-raise.
  7. Obtain a bulk-mailing permit from the post office.

V. Commence Operations

Now comes the fun part. Follow your business plan careful, attend to your mission statement and hire staff, find a place to operate from, obtain contracts, grants or whatever you need to fund your operations and get to work.

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