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Starting a Non-Profit Organization
Introduction
A non-profit organization generally provides programs and services that strengthen a community by creating thriving living environments for individuals, children, youth, families, schools, organizations, and businesses. Non-profit organizations are tax-exempt and are able to receive tax-deductible charitable contributions.
A 501(c)(3) non-profit is an organization that is established and operates for religious, educational, charitable, literary, or educational purposes, or helps to promote national or international amateur sports, or prevents cruelty to children or animals (Foundation Group, 2011). It is usually structured as a community, fund, or foundation organization.
How to Get Started
Step 1: Decide what your non-profit organization will do. Find social issues you would like to help resolve. Contact local social service agencies to see what areas of service they need help with. After you come up with a list of possibilities narrow your choices down to one issue or service. You can always expand services or products later as your organization grows.
Step 2: A non-profit organization should establish a mission statement with the needs of the community in mind. The mission statement should be expressed in one or two sentences. The mission statement is more powerful when it describes what you do, what you expect to achieve in the community you serve, and what values you plan to infuse into your organization to make it effective. Your organization and mission statement should be distinct. For more information on this topic, visit http://dir.alabama.gov/uc/. In Alabama, call 1-866-234-5382 toll free to apply for unemployment insurance benefits.
Step 3: Decide what type of non-profit organization you want to start. There are three legal forms a non-profit organization can take: a corporation, an unincorporated association, or a charitable trust. The type of business format you choose will greatly depend on your anticipated funding. The most secure non-profit structure is the incorporated form. This form of non-profit is recognized by the Internal Revenue Service (IRS) as a tax-exempt entity and provides its board members with protection from personal liability due to claims against the non-profit. Seek legal counsel if you don't know which structure to use.
Step 4: Determine the name of your non-profit.
Step 5: Recruit board members to meet the needs of your non-profit and the requirements set out by your state. In some cases, a small advisory board may be all that is required by the state where you plan to operate the organization.
Step 6: Find a lawyer you can consult with during the incorporation process. You don't necessarily need to have the lawyer do all of the work associated with incorporation, but a lawyer can guide you through the process.
Step 7: Set up a bank account for your non-profit organization. Look for a bank that is familiar with the banking needs of small non-profit organizations.
Step 8: Set up an accounting system. You may need to invest in a qualified accountant. You may want to contact your state's board of certified public accountants to get a list of certified accountants in your area.
Step 9: Find an insurance agent to help you develop an insurance policy that will protect you and your organization. You will probably need liability and property insurance. You will also need worker's compensation, health, and life insurance if you plan to hire employees, although health and life insurance are optional.
Draft and File Your Legal Incorporation Document
Step 1: Identify the basic information about your non-profit organization. You will need to include the name of your non-profit, where the headquarters will be officially located, and what is the purpose of your organization.
Step 2: Draft your purpose clause. Your purpose clause will need to broadly define what goals your organization will have. Keeping these goals general and broad will give you flexibility in what you can actually do and what services you can provide to your clients later.
Step 3: Decide if you want your non-profit organization to be a membership organization. This decision will need to be based on how you want your non-profit organization to run. For example, if you make your non-profit a membership organization, then the members will have a say in how money is spent and how the organization operates.
Step 4: Look for an articles of incorporation template online.
Step 5: Check with your state to see if by-laws are required in your articles of incorporation.
Step 6: Draft by-laws for your non-profit organization. The by-laws should outline how your organization's board members will be organized and governed, and how the organization's employees will be situated in the company. If your state requires by-laws, you will need to include them with articles of incorporation. If your state does not require them, you will need to draft them as a separate document. Consult with a lawyer who specializes in incorporation to make sure your articles of incorporation will set up your non-profit the way that you intended it to be set up.
Step 7: Present the draft of your articles of incorporation and your by-laws to your board members. They will need to approve the articles and by-laws before you file them with the state. If there are changes recommended then the changes should be made, reviewed, and approved before filing the articles.
Step 8: File your incorporation papers with the Office of the Secretary of State or the Attorney General, depending on your state's laws.
Step 9: Determine if other forms or documents are required. When you submit your articles of incorporation to the state, they may request that you submit other forms and documents. Follow their instructions.
After You File Your Legal Incorporation Documents
Step 1: Get approval from the board to file for tax-exempt status.
Step 2: File for federal tax-exempt status with the IRS. You can find the forms for this on the IRS Web site at www.irs.gov.
Step 3: File for state tax-exempt status. You will need to wait for federal approval for tax-exempt status before you contact your state's department of revenue. You can find contact information for your state's department of revenue in your local phone book, under the government section, or you can conduct a keyword search online.
Step 4: Research local permit and business requirements, permit, or file city level tax exempt status forms.
Step 5: Obtain a mail permit from the United States Postal Service. This will grant you a bulk mail discount for your fundraising mailings.
Step 6: Take care of employment filing needs. If you plan on hiring employees, you will need to file for a federal employer number. This is a free process that you can handle in-office. There is a simple form that you will need to fill out and file with the IRS. Once approved, the IRS will mail you a form with your federal employer number. You will also need to file for a state employer number. Contact your state's department of revenue for the proper forms. Finally, make sure you have unemployment insurance and the proper tax reporting forms needed for meeting employment laws.
Once You're Legal
Step 1: Determine what staff members you will need. Create a list of positions that are needed to run your organization. For example, a basic non-profit organization will need an office manager, fundraiser, promoter, and an executive director.
Step 2: Find office space and buy equipment and furniture.
Step 3: Set up the office.
Step 4: Recruit staff members. Utilize local employment agencies, referrals from board members, and local media to advertise your open positions.
Step 5: Review resumes and look for applicants that have the basic skills needed for each position.
Step 6: Set up interviews with your top applicants and invite board members to sit in on the interviews.
Following the steps in this publication should provide you with the most important information you will need to start your non-profit organization. Other resources can be found online at:
Alabama Association of Non-Profits
MyUSA Corporation.com: Alabama Non-Profit Organization
Publication 557: Tax-Exempt Status for Your Organization
Tax Info for Charities and Other Non-Profits
The Company Corporation: Incorporate or Form a Business in Alabama
References
Foundation Group, Inc. (2011). What is a 501c3. Retrieved June 14, 2011.
Wrobel, T., Rubenstein, B., Herrick, J., C., Krystle, Jax, . . . Imperatrix. (2011, February 20). How to start a 501c3 nonprofit organization. WikiHow. Retrieved June 14, 201.
UNP-0015, June 2011, Roger A. Richardson, Ph.D., Extension Urban Economic Development Specialist, Alabama A&M University
For more information, contact your county Extension office. Visit http://www.aces.edu/counties or look in your telephone directory under your county's name to find contact information.
Published by the Alabama Cooperative Extension System (Alabama A&M University and Auburn University), an equal opportunity educator and employer.
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