Starting a nonprofit is an exciting and rewarding opportunity, but it can also be challenging. Here you will find important information and services to help guide you through the process:
Types of Nonprofits
A nonprofit organization commonly performs some type of public or community benefit, without the purpose of making a profit. There are various categories of nonprofits recognized by the Internal Revenue Service (IRS):
- Charitable or religious organizations
- Social welfare organizations
- Labor and agricultural organizations
- Business leagues
- Veterans organizations
A nonprofit is an organization that qualifies for tax-exempt status under the regulations outlined by the Internal Revenue Code. A charitable organization or charity is a non-profit organization whose primary objectives are philanthropy and social well-being (e.g. charitable, educational, religious, or other activities serving the public interest or common good).
Each category has different tax benefits and requirements. While the majority of nonprofits are classified under 501(c)(3) of the IRS Code as charitable organizations, you should review the categories to determine the right choice for your nonprofit organization.
Incorporate a Nonprofit
This process is very similar to creating a regular corporation except that you have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. These are the steps to take to incorporate your nonprofit:
- Choose a business name:
Check the state-by-state information on the various laws that apply to name a nonprofit in your state.
- Appoint a Board of Directors:
Draft your bylaws with guidance from your Board of Directors. These are the operating rules for your nonprofit.
- Decide on a legal structure:
Choose whether your organization will be a: Trust, Corporation or Association:
In general, a trust is a relationship in which one person holds title to the property, subject to an obligation to keep or use the property for the benefit of another. A trust is formed under state law. You may wish to consult the law of the state in which the organization is organized. Note that for a trust to qualify under section 501(c)(3) of the Code, its organizing document must contain certain language. Publication 557 contains suggested language.
In general, a corporation is formed under state law by the filing of articles of incorporation with the state. The state must generally date-stamp the articles before they are effective. You may wish to consult the law of the state in which the organization is incorporated. Note that for a corporation to qualify under section 501(c)(3) of the Code, its charter or articles of incorporation must contain certain language. Publication 557 contains suggested language.
In general, an association is a group of persons banded together for a specific purpose. To qualify under section 501(a) of the Code, the association must have a written document, such as articles of association, showing its creation. At least two persons must sign the document, which must be dated. The definition of an association can vary under state law. You may wish to consult the law of the state in which the organization is organized. Note that for an association to qualify under section 501(c)(3) of the Code, its articles of association must contain certain language. Publication 557 contains suggested language.
- File your incorporation paperwork:
You must next file formal paperwork or articles of incorporation, and pay a small filing fee to your state. State law may require charitable organizations to register and file periodic reports.
- Apply for tax-exempt status:
A nonprofit organization may be eligible for exemption from federal income tax to determine your eligibility you must Apply for Section 501(c)(3) Status.
- Obtain necessary licenses and permits:
Does your nonprofit have all the licenses and permits needed to comply with federal, state, and local rules?
Grants, Loans, and Other Assistance
While individual donors make up the largest contributors to nonprofit organizations, federal, state and local governments offer grants, loans, and programs to support funding.