Starting a nonprofit organization is a noble and rewarding endeavor that allows you to make a positive impact on the world around you. Nonprofit organizations are created to carry out charitable, educational, religious, scientific, or literary objectives that benefit society. A nonprofit organization is different from a for-profit one in that it has no owners or shareholders and all its profits are reinvested into the organization to further its mission. If you’re interested in setting up a nonprofit charity, here’s what you need to know:
What Are the 3 Types of Nonprofits?
Before you start a nonprofit organization, it’s important to know the different types of nonprofit entities that exist. The three most common types of nonprofits in the United States are:
501(c)(3) nonprofit – This is the most common type of nonprofit and is recognized by the Internal Revenue Service (IRS) as a charitable organization. This type of nonprofit is tax-exempt, meaning it doesn’t have to pay taxes on its income and donors can deduct their charitable contributions on their taxes.
501(c)(4) nonprofit – This type of nonprofit is also tax-exempt, but it has a different focus. 501(c)(4) nonprofits engage in social welfare activities, such as promoting community welfare and civic improvement. Donors to 501(c)(4) nonprofits cannot deduct their contributions on their taxes.
501(c)(6) nonprofit – This type of nonprofit is also tax-exempt, but it’s focused on promoting the interests of a particular industry or business. Examples of 501(c)(6) nonprofits include trade associations and chambers of commerce.
When starting your nonprofit, you’ll need to decide which type of nonprofit organization best suits your goals.
How Do I Start a Nonprofit for Beginners?
Starting a nonprofit organization can be a complex process, but it’s not impossible. Here are the basic steps to start a nonprofit:
Choose a name – Choose a name that reflects your charitable mission. Make sure the name is not already taken by another nonprofit organization and that it complies with your state’s naming requirements.
Select a board of directors – Your board of directors will be responsible for overseeing the organization and making decisions. Choose individuals who share your passion and bring diverse perspectives and experience to the table.
Write articles of incorporation – Articles of incorporation are legal documents that establish your nonprofit as a formal entity. They should include your organization’s name, purpose, location, and governance structure.
Apply for tax-exempt status – To obtain tax-exempt status, you’ll need to file Form 1023 or Form 1023-EZ with the IRS. This process can be time-consuming and complex, so it’s recommended that you seek professional assistance.
Develop bylaws – Bylaws are the rules and procedures that govern your nonprofit’s internal operations. They should include details about board meetings, officer roles, and other important governance matters.
Register with your state – You’ll need to register with your state to obtain a state tax exemption and to comply with state regulations.
Obtain necessary licenses and permits – Depending on your activities, you may need to obtain additional permits or licenses at the federal, state, or local level.
Grants to Start a Nonprofit
Starting a nonprofit organization can be costly, but there are grants available to help cover some of the expenses. The following organizations offer grants and funding for nonprofit startups:
The Small Business Administration – The SBA offers loans and grants to nonprofit organizations through its Community Advantage program.
The Foundation Center – The Foundation Center is a nonprofit organization that offers a comprehensive database of grants and funding opportunities for nonprofit organizations.
Grants.gov – Grants.gov is a database of federal grant opportunities. Nonprofit organizations can search for grants that match their mission and apply online.
Can I Start a Nonprofit by Myself?
While it’s possible to start a nonprofit by yourself, it’s generally not recommended. Nonprofit organizations require a board of directors to oversee operations and make decisions. Additionally, starting a nonprofit can be a complex and time-consuming process that benefits from having a team of people to share the workload.
How Much Can You Pay Yourself to Run a Nonprofit?
Nonprofit organizations are required to pay reasonable compensation to their staff, including their CEO. However, the IRS prohibits excessive compensation that would be deemed unreasonable for a tax-exempt organization. The amount that you can pay yourself as the CEO of a nonprofit depends on various factors, such as your organization’s size and financial resources.
Nonprofit Organization: Starting a Nonprofit Organization Checklist
Starting a nonprofit organization can be overwhelming, but a checklist can help keep you on track. Here are some of the most important steps to include in your nonprofit organization checklist:
- Develop a mission statement
- Choose a name
- Establish a board of directors
- Write articles of incorporation
- Develop bylaws
- Apply for tax-exempt status
- Register with your state
- Obtain necessary licenses and permits
- Develop a fundraising plan
- Create a budget
- Develop a marketing plan
What Is the Difference Between a Nonprofit and a For-Profit Charity?
The main difference between a nonprofit and for-profit charity is how they handle their profits. In a for-profit charity, profits are distributed to the owners or shareholders. In a nonprofit, profits are reinvested into the organization to further its mission.
Alternatives to Starting a Nonprofit
Starting a nonprofit isn’t the only way to make a difference in your community. Here are some alternatives to starting a nonprofit:
- Volunteer with an existing nonprofit organization
- Donate to an existing nonprofit organization
- Start a social enterprise
- Join a community group or association
- Lobby for change in your community
How Much Does It Cost to Start a Nonprofit Organization?
The cost of starting a nonprofit organization can vary depending on various factors, such as your state’s filing fees and the cost of professional services, such as legal or accounting assistance. On average, starting a 501(c)(3) nonprofit organization can cost between $500 to $1,000.
How to Start a Nonprofit in PA
To start a nonprofit organization in Pennsylvania, you’ll need to follow these steps:
- Choose a name and check its availability
- Draft articles of incorporation
- File the articles of incorporation with the Department of State
- Obtain tax exemption from the IRS and state tax authorities
- Develop bylaws
- Register with the Department of State
- Obtain necessary licenses and permits
Starting a nonprofit organization can be a challenging but rewarding experience. By following these steps and seeking professional guidance, you can create an organization that makes a positive impact in your community.