How to Become a Nonprofit 501(c)(3)
Achieving nonprofit status for your organization isn’t easy, but learning the steps to take, you will soon be on your way to operating a nonprofit!
As a nonprofit organization, you can receive major tax incentives, as well as qualify for grants and sponsorships, but the road to becoming an official nonprofit can be difficult if you don’t know the steps to take.
The first step in moving toward becoming a nonprofit is to file your paperwork to receive 501(c)(3) status. The form to fill out is the IRS Form 1023. Before you fill out this lengthy document, make sure you have the answers to these questions:
- What sort of organization am I creating (is it a charity? education? religious?)?
- Who will run it?
- Who will be on my Board of Directors?
- How will we raise funds?
- Will we have members?
- Have I surveyed to determine the need for this type of organization in my community?
You may not yet have all the answers to these questions, but starting here can help you fill out the required form.
Articles of Incorporation
Before filing your 1023, you will need to file your articles of incorporation. There’s a special form for nonprofit corporations, so check with the IRS’ website to make sure you have the right one. Once you have it approved, you can move forward with your 1023.
As part of your 1023 application, you will need to create a mission statement. Use this Mission Statement Worksheet to help you figure out what your company stands for and what aims you have in serving others.
You will also need to put together bylaws, which are essentially the guidelines for your nonprofit and for your Board of Directors. Use the Business Bylaws Template to create your own. The bylaws should outline how many members the Board will have and how often it will convene, as well as any requirements that you have if your nonprofit is membership-based.
Just like any type of business, your nonprofit needs a budget. List your expected expenses, as well as where you expect funding to come from. This can help when you apply for grants or sponsorships for your nonprofit. You will need to assess your budget and get the Board to approve it annually, as it may change into the future.
You may decide on a combination of funding, including grants, donations and fundraising. Create a plan for how much will come from the different areas, and how much you will need based on your budget.
There are a few other forms you need to fill out before the the 1023. File for your state and local tax exemption so that the IRS doesn’t send you a tax bill uneccessarily. Also, apply for your Federal Employer Identification Number before you proceed with the 1023.
If you plan on mailing mass quantities of direct mail, apply for a nonprofit mailing permit, which will get you a discount on your mailings.
Know that form 1023 can be expensive to file. Fees start at $400 (to date). It’s important that you get the paperwork right the first time to avoid any additional fees.
When choosing your Board, look for diverse backgrounds in your members. It’s also a good idea to invite people who may be able to provide funding for your nonprofit. You want Board members who appreciate and adhere to your mission statement, and who can bring different attributes to the table. Be sure not to invite people who are overbooked, as you want them available when you need them.
Once you have been approved for 501(c)(3) status, you’re officially a nonprofit and can start operating. If you apply for grants, use sites like Grants.gov or check with different corporations’ websites to see their grant or sponsorship requirements.
If you feel that the 1023 is beyond your scope, speak with a lawyer who has experience with nonprofits. Additionally, you may find it easier to hire a grant writer who has experience in helping nonprofits get grants. It’s an expense well worth it, assuming you are awarded grants.