So you want to start a nonprofit organization? The reason individuals or a group of individuals form a nonprofit organization is an enormous dedication to do good works to improve the lives of others and their communities. It will take funds to run your programs and the most common requirement for obtaining grant funds from government agencies or private foundations is being a tax-exempt nonprofit corporation. This guide provides an overview of the information required to receive tax-exempt status. Although an individual can complete the state and federal forms themselves, success in forming a nonprofit corporation will usually require competent legal counsel.
Vision and Mission Statements
Establishing a nonprofit organization requires a full understanding of your organization’s vision. Vision and mission statements should articulate the essence of your organization's beliefs and values and define its place in the world. They will establish the long-term direction of an organization's operations and will determine what kind of entity the nonprofit organization will be, unincorporated or incorporated. To find information on mission statements, try the Alliance for Nonprofit Management and the free guide posted at Tony Poderis' Fund-Raising Forum.
Filing Certificate of Incorporation
If you are establishing a nonprofit corporation the first step is drafting the legal incorporation document--the "certificate" or "articles" of incorporation--and filing the document with the Ohio Secretary of State. Incorporation usually can be accomplished within a matter of weeks, although complex state agency reviews can considerably extend that period.
Select a Board of Directors
Selecting board members can be a time consuming task. Consider someone who is interested in the organization's purpose and be in a position to make financial contributions to the organization, or to find others who will. It is also desirable if board members are well known in the field in which the nonprofit organization functions and it can be extremely beneficial if they have expertise in areas such as real estate, nonprofit law and accounting.
Establish Bylaws and Board Policies
Bylaws define how a nonprofit organization will be managed and how it will run. They determine which staff and board members have authority and decision-making responsibilities and how those responsibilities should be carried out. They create a framework for the organization, and aid in resolving internal disputes. They also describe the rules for calling board meetings, and how and when board members are elected.
For help in writing your bylaws see the free template posted on the Minnesota Council of Nonprofits’website.
Obtain an Employer Identification Number (EIN) and File For Federal Tax Exemption
To open one or more bank accounts in the name of the organization (and to file Form 990 with the IRS after each fiscal year), you will need to obtain an employer identification number (EIN), also called a federal tax identification number. An EIN may be obtained by filing Form SS-4 with the Internal Revenue Service. Looking ahead, this step is necessary for withholding employee income tax once you begin to hire staff.
You will need to file with the Internal Revenue Service for tax-exempt status under Section 501(c)(3). Form 1023 is the multi-page form you will need to file and Publication 557, Tax Exempt Status for Your Organization, explains the process. Within three to six months of submitting your paperwork, you will receive a letter granting tax-exempt status to your organization.
Success in securing both state incorporation and federal tax-exempt status usually requires the assistance of an attorney. If you have limited financial resources, you might contact a public interest legal organization such as Corporate Pro Bono.
State and Local Nonprofit Regulations
Once you receive tax-exempt status from the federal government, it is likely that you will need to file separately for state and local tax exemptions. Most states and many localities require nonprofits to register with the Charities Registration Bureau of the state or locality where they'll be fundraising. For Ohio you will need to register with the Charitable Law Sectionof the Attorney General’s Office.
Develop a Funding Plan
After your organization is legally incorporated and received tax exempt status, you can begin developing a funding plan. It is important to receive funding from a mix of individual and institutional sources, as well as earned income generated from special events, products, services and membership fees. To learn more about foundation fundraising, earned income and other revenue options see the Foundation Center website for classes on these topics.