Nonprofit organizations get started for many different reasons. If you see an unmet need in your community, you might start thinking that perhaps – with a little help – you can solve that problem.
This is the very first step in creating a nonprofit: deciding on a charitable mission. It’s important for every nonprofit to have a clear, well-defined mission. Not every problem-solving idea is destined to grow into a nonprofit. Before continuing down the path of creating a nonprofit, you should research organizations that already exist to solve similar problems. It may be more impactful to combine your resources rather than creating an entirely new organization.
Once you have determined your unique mission, there are several important steps that you must take to become a legal nonprofit organization. Early on in the process, you should take time to become familiar with state and federal laws and procedures surrounding nonprofits. The National Council of Nonprofits is a great resource for new nonprofits, and your state nonprofit association can provide more specific details about state and local requirements. It’s also a good idea to speak with other nonprofit entities and attorneys or accountants that specialize in the nonprofit sector.
Now it’s time for the next big question. Do you want to start a public charity or a private foundation? The biggest difference between the two is the way in which funds are raised. Private foundations are usually created by an individual, family, or company to generate income, which is then granted out according to the foundation’s charitable mission. A public charity seeks donations from the public, and those donations are used to fund the activities of the organization. Each type of nonprofit comes with its own benefits and limitations, so you’ll want to research these carefully before making a decision.
If you’ve made it this far, it’s time to think about what you want your organization to be called. This might be trickier than you think, since the name you choose must be available for use and free of any trademark. You may even want to consider a trademark yourself, to eliminate any potential confusion with other organizations and to protect yourself legally.
At this point, you may want to start drafting your bylaws. Bylaws are essentially the “manual” for your nonprofit; they outline the internal rules for operating your organization. You’ll want to consider the role and duties of your board members, meeting guidelines, membership eligibility, accounting procedures, how to handle conflicts of interest, and a plan for dissolution of your organization’s assets.
In addition to these general steps, each state has their own specific rules and regulations about nonprofit formation. For example, in the state of Michigan:
You must have a governing body for your charity. This body is called the board of directors and is made up of a minimum of a president, secretary and treasurer in Michigan.
You must also appoint a registered agent with a Michigan address. This individual will be responsible for receiving documents on your organization’s behalf.
You must have a Federal Employer Identification Number (FEIN). This can be easily obtained with an online application and a small fee.
You must file Articles of Incorporation with the Corporation, Securities & Commercial Licensing Bureau in LARA – Michigan’s Department of Licensing and Regulatory Affairs.
You must apply for an IRS exemption if you wish to operate as a tax-exempt organization. You are able to operate while your application is being considered, since this process can take several months.
You must register with the Michigan Attorney General if you plan to solicit donations in the state of Michigan.
Once you have fulfilled all requirements, you’re ready to begin operating your nonprofit! But your journey doesn’t end here. Nonprofits have annual filings and other requirements that also need to be met in order to continue operating in good standing. For example, some of your organization’s annual requirements may include:
Filing a Form 990, 990-N, or 990-EZ with the IRS. The type of form you file is contingent on your organization’s assets and/or revenue.
Obtaining an audit or financial statement review. This may depend on the type and amount of support you receive and your obligations to grantors or funders.
Renewing your charitable solicitation registration with your home state and any other states where you solicit donations.
Starting a nonprofit isn’t easy. But if you’re committed, careful, and do your research, you’ll be on firm footing to begin making a difference in the world. If you have questions, reach out to your state nonprofit association, other nonprofit organizations, or specialists in the nonprofit sector.
