A good deal of what I write about pertains to businesses. These tips and tricks can be used just as well for nonprofit organizations, too. What I haven’t done is help you start a nonprofit organization — something that I did back in 2010. Since then I’ve served on three nonprofit boards and helped several people start their own nonprofit organization. It’s about time I write a blog with instructions to help you get started.
Building a Board
This post is assuming that you will do some business planning (perhaps using a tool like the Business Model Canvas) before you get to this step. You’ll need to be able to present a cohesive idea to potential board members — a vision they can identify with that also fits their skill sets. After making your business plan, this is the first great leap to getting a nonprofit started.
You only need three board members to file with the state. However, you may want more involved, depending on the size and reach of your goal. I always went with odd numbers so a tie couldn’t happen during voting.
Make sure your board consists of many different skills, even if some overlap. This is especially important in filling the skills you don’t have yourself. A board will provide the support you need to get things off the ground and running smoothly before you hire your first employees. If they don’t compliment your and each other’s skill sets, you’ll find this a tiresome process. Nonprofits already have a high burnout rate; don’t set yourself up for failure before you even begin (like I did — doing it all by myself!).
Filing your nonprofit corporation papers with the state works much the same as filing a LLC or corporation. The difference is the cost of filing and the structures needed in order to take this step.
In the state of Michigan you need at least three board members in order to file your papers. When I put together my board I just asked some trustworthy friends with big hearts to be my board so I could get past this step. Over time it became clear that, while they totally believed in me and the cause, they didn’t have the skill sets that I needed to be successful.
You may, eventually, want a lawyer involved to refine your state paperwork. However, if you’re starting from scratch, I recommend saving the cost for the first six months until you have a proof of concept and benefactors.
Once you have the papers from the state, you can file for your EIN number just like with a for-profit business. You need these two documents to both open a bank account (most banks offer free checking to nonprofit organizations) and file for tax exemption from the IRS.
Becoming Tax Exempt
At this stage you and your board should know what kind of 501(c) organization you wish to become. The IRS classifies nonprofits in several groups, and it is critically important you understand the requirements for each (ie. a 501(c)3 organization cannot be involved in political affairs). Make sure you do your research and choose accordingly.
Most states offer classes about 501(c)3 organizations. You may wish to consider taking a class on filing for your IRS paperwork since it is a long process. In short, the IRS application is a minimum of 40 pages. You’ll also need to submit your organization’s bylaws, board member profiles, codes of conduct, and conflict of interest clauses. I realize it sounds like a lot (and it is), but this is when your board members should step up to divide and conquer.
My biggest recommendation in all of this is to not do it like I did — alone. It was a stressful time, and while I learned a lot and am stronger for it, it’s always better to have help.