Charitable Organizations Nonprofits Resource Guide
Helping Those in Need by Organizing a New Charitable Organization
Have you always wanted to leave the world a better place vs how it was when you realized its condition by starting a nonprofit charitable organization? Here's a simple and concise guide on how to successfully setup and establish a new 501(c)(3) nonprofit charitable organization, corporation or charity foundation.
Step 1 - starting a Nonprofit Charitable Organizations Objective
Understand what a nonprofit charitable organization is: an organization whose primary objective is to support some issue or matter of private interest or public concern (such as the arts, charities, education, health and wellness, politics, religion, research, or some other endeavor) for non-commercial purposes. There are different kinds of nonprofit's, one of them being 501(c)(3), which is tax-exempt from income and (sometimes) property tax, and able to receive tax-deductible charitable contributions.
Is an Attorney Needed or Can I do it Myself? While it can be quite helpful to consult with an attorney who is experienced in the area of nonprofit law to help avoid mistakes that people sometimes make when they try to incorporate by themselves, people can save significant money and are successful establishing a nonprofit charitable organization on their own. For those interested in proceeding without using or consulting with an attorney, resources from books and on the Internet such as your Secretary of State website which provides all necessary forms and information needed to establish a new nonprofit charitable organization startup business.
Step 2 - starting Charitable Organizations Mission
Formulate a Nonprofit mission statement. As a non-profit charitable organization, you will exist to accomplish your charitable mission, which should be based upon your purpose, services and values. The nonprofit mission statement is a concise expression briefly covering in no more than two sentences who the organization is, what it does, for whom and where. It should also be compelling, as it will be used in all your published materials, funding requests and public relations. It should also say how your organization is distinct vs others. (See Tips for sample mission statement.)
Step 3 - starting your Charitable Organization Setup
Form a Board of Directors. Forming a board requires careful consideration and thought and recruitment works. Each state has regulations determining the minimum size of the board, typically 2 or 3, but the optimum number of people residing on the board should be determined by the needs of the organization. Based on what your organization would like to accomplish, you should decide what special skills and qualities you will require of the persons on your board. Identify qualified individuals who are supportive of your specific mission and willing to give their talents and time (see Tips for more information).
Step 4 - starting Charitable Organizations Articles of Incorporation
File Articles of Incorporation. Articles of Incorporation are official statements of creation of an organization filed with the appropriate state agency. They are important to protect both board and staff from legal liabilities incurred by the organization, making the corporation the holder of debts and liabilities, not the individuals and officers who work for the organization. The specific requirements governing how to incorporate are determined by each state. You can obtain the information you need to proceed with this step from your state Attorney General’s office or your state Secretary’s office. Before you spend your money, at least consult with an attorney who is experienced in the area of nonprofit law so that you do not make one of the many major mistakes that people make when they try to incorporate by themselves.
Step 5 - starting Charitable Organizations Bylaws
Draft bylaws for Charitable organization. Bylaws are simply the "rules" of how the organization operates. Although Bylaws are not required to file for 501(c)(3) status, they will help you in governing your organization. Bylaws should be drafted with the help of an attorney and approved by the board early in the organization's development.
Step 6 - starting Charitable Organizations Budgets
Develop a budget. Creating a budget is often one of the most challenging tasks when creating a nonprofit charitable organization. A budget is the expression, in financial terms, of the plan of operation designed to achieve the objectives of an organization. New organizations may start the budgeting process by looking at potential income – figuring out how much money they have to spend.
Step 7 - starting Charitable Organizations Record Keeping
Develop a record-keeping system for charitable organization. Legally, you must save all Board documents including minutes and financial statements. It is necessary to preserve your important corporate documents, including board meeting minutes, bylaws, Articles of Incorporation, financial reports, and other official records. You should contact your appropriate state agency for more information on what records you are required to keep in the official files.
Step 8 - starting Charitable Organizations Accounting
Develop a reliable accounting system for charitable organization. If your board does not include someone with a financial or accounting background, it is best to work with an accountant familiar with non-profit organizations. Nonprofit's are accountable to the public, their funders, and, in some instances, government granting bodies, and it is vital to establish a system of controls (checks and balances) when establishing the organization’s accounting practices. Responsible financial management requires the establishment of an accounting system that meets both current and anticipated needs.
Step 9 - starting Charitable Organizations EIN's
Apply for a federal employer identification number for charitable organization. Regardless of whether or not you have employees, nonprofit's are required to obtain a federal Employer Identification Number (EIN) — also referred to as the federal ID number. Available from the IRS, this number is used to identify the organization when tax documents are filed and is used not unlike an individual’s Social Security number. If you received your number prior to incorporation, you will need to apply for a new number under the corporate name. Ask for Form SS-4 when applying for your Employer Identification Number.
Step 10 - starting Charitable Organizations Status
File for 501(c)(3) status. To apply for recognition of tax-exempt, public charity status, obtain Form 1023 (application) and Publication 557 (detailed instructions) from the local IRS office. The filing fee depends upon the size of the organization’s budget. The application is an important legal document, so it is advisable to seek the assistance of an experienced attorney or certified public accountant when preparing it. Both of these documents can be downloaded from IRS web site listed below.
Step 11 - starting Charitable Organizations Tax Exemption
File for state and local tax exemption. In accordance with state, county, and municipal law, you may apply for exemption from income, sales, and property taxes. Contact your state Department of Revenue, your county or municipal Department of Revenue, local Departments of Revenue, and county or municipal clerk’s offices.
Step 12 - starting Charitable Organizations Regulation
Fulfill charitable solicitation law requirements. If your organization’s plans include fund-raising, be aware that many states and few local jurisdictions regulate organizations that solicit funds within that state, county, or city. Usually compliance involves obtaining a permit or license and then filing an annual report and financial statement. Contact the state Attorney General’s office, the state Department of Commerce, state and local Departments of Revenue and county or municipal clerk’s offices to get more information.
Step 13 - starting Charitable Organizations Subsidies
Apply for a nonprofit mailing permit. The federal government provides further subsidies for nonprofit's with reduced postage rates on bulk mailings. While first-class postage rates for nonprofit's remain the same as those for the for-profit sector, second- and third-class rates are substantially less when nonprofit's mail to a large number of members or constituencies. For more information on eligibility, contact the U.S. Postal Service and ask for Publication 417, Nonprofit Standard Mail Eligibility (also available at the link below)
Tips - starting Charitable Organizations Missions
- Sample mission statement: "The National Mental Health Association is dedicated to promoting mental health, preventing mental disorders and achieving victory over mental illnesses through advocacy, education, research and service; The National Consumer Supporter Technical Assistance Center’s purpose is to strengthen consumer organizations by providing technical assistance in the forms of research, informational materials, and financial aid. The mission of Texas Mental Health Consumers is to organize, encourage, and educate mental health consumers in Texas. TMHC supports and promotes the mental health recovery process through peer directed and operated services, advocacy, economic development, and participation in public mental health policy design."
- What to look for in a board member: Look for individuals whose values reflect your statement of purpose. Although it is recommended that the majority of your board be consumers, include the community at large, not just your specific community of focus (e.g. the mental health community). Consider the religious community, local service clubs, legal professionals, and colleges and universities as sources for prospective a Board of Directors. Do not overload people who already serve on many committees – seek a balance between old and new leadership.
- The organization needs to open a bank account and ascertain whether to use the accrual or cash method of accounting. The difference between the two types of accounting is when revenues and expenses are recorded. In cash basis accounting, revenues are recorded when cash is actually received and expenses are recorded when they are actually paid (no matter when they were actually invoiced). In accrual basis accounting, income is reported in the fiscal period it is earned, regardless of when it is received, and expenses are deducted in the fiscal period they are incurred, whether they are paid or not.
- Hire an attorney to help with your Certificate of Incorporation and the By-Laws. Hire an attorney or accountant, particularly one with experience in 501c3 nonprofit corporations, to help file the state and federal exemption forms. It will save you time and money in the long run.
- You may want to secure a domain name that matches the name of your proposed organization.
- Design a logo and tag line that will help distinguish your organizations from others and be representative of what your mission is.
Starting Charitable Organizations Professional Services
- Do not use an Incorporation service or Paralegal document processing service to start your nonprofit. They often only provide part of your documentation needed for full Tax Exempt Corporation status. You could also consult a nonprofit law attorney, an experienced accountant or a professional 501(c)(3) consulting service, but be sure to check them out. Most paralegals, attorneys and accountants have little experience in this area. You can usually check out these services via the local legal bar association, references, or the Better Business Bureau.
- It is important to file your 1023 within 27 months of the date when your organization was established, or when your Articles of Incorporation were filed. Although the IRS may approve an additional extension under certain circumstances, missing the deadline may result in your charity or foundation not getting 501(c)(3) recognition retroactive to its incorporation date.
Sources, Nonprofit Resources and Citations
- https://pe.usps.gov/cpim/ftp/pubs/Pub417/Pub417.pdf - Publication 417, Nonprofit Standard Mail Eligibility