How to start a Non-Profit Organization in 9 Steps

If you want to start a non-profit, you have to incorporate it as a non-profit organization. The process of incorporating a non-profit organization is similar to that of a profit organization. This post outlines every detail you need to know on how to incorporate a non-profit organization.

What is a Non-Profit Organization?

A non-profit organization is an organization with a mission statement to help humanity. The organization channels its revenue and income to achieve its mission.

Companies you can Run as a Non-Profit

To run your organization as a non-profit, it must fall under the following categories.

Charity organization, non-profit educational organization, scientific organization, association, chambers of commerce, humanitarian aid.

Also read: How to apply for Employer Identification Number EIN

Benefits of Incorporating a Non-profit Organization

a. Protection against Liability: The board members and employees of a non-profit organization are protected against liabilities. In other words, if liability is incurred in the process of running the non-profit, it is just the business assets that the creditors can come after.

b. Tax Exemption: Since the revenue of a non-profit is channeled into achieving its mission, most non-profits are exempted from paying taxes. To enjoy this tax exemption status, the board members of the non-profit must file for tax exemption to the Internal Revenue Service.

c. Exist in Perpetuity: This means that a non-profit continues to exist even after the death of its founders and board members.

d. Access to Grants: Non-profits can source for revenue by applying for grants. There are several grants available to non-profit organizations from government, corporate bodies, and individuals.

e. Benefits for Employees: Employees of a non-profit enjoy some form of benefits from working for the organization. Employees enjoy a discount on life and health insurance.

Disadvantages of Incorporating a Non-profit Organization:

Are there disadvantages of running a business as a non-profit? Yes, some disadvantages come with incorporating an organization as a non-profit.

a. No Profit Policy: You are not expected to make any profits from running a non-profit organization. Any profit made from the business is reinvested into the organization to achieve its aim. Thus, investors are most times reluctant to invest in a non-profit since they won’t earn returns on investment.

b. Difficulty in Raising Funds: There is also the issue of raising funds. The major problem most non-profits have is the issue of raising funds. The non-profit sharing policy makes it difficult for investors to invest in non-profits.

c.Difficulty in Finding Motivated Employees: This is another issue most non-profits face. Since non-profit workers are expected to work voluntarily, it is difficult to find employees motivated to work.

d. Takes Times: It usually takes time to register or incorporate a non-profit. Most times, it takes 3 to 12 months for the IRS to go through your application, verify and approve your applications.

e. Money Spent: You spend a little below $1,000 to submit a non-profit application to IRS.

Also read: Business Structure: Types of Business Structures

How to Start a Non-Profit Organization:

Step 1. Create a Mission Statement:

The first step you need to take when starting a non-profit is to create a mission statement. What is a mission statement? A mission statement is a document that outlines the aims and objectives of the non-profit organization. You need to be clear on your goals and objectives and put it down in writing as a mission statement. You may have to present this mission statement to sponsors when sourcing for revenue for the organization. This is why your mission statement must be written with a professional touch.

Step 2: Create a Business Plan:

Most people think that it is only a profit organization that requires a business plan. There is also a need for a business plan for a non-profit. The details you should include in your business plan are details of the structure of the non-profit, financial plan, marketing plan, products and services and executive summary. Also, you have to include details of how you intend to achieve the organization’s mission statement in the short-term and long-term.

Step 3: Board of Directors Recruitment:

In most states, you must have an existing board to register for a non-profit. In other states, you don’t need to have a board. It is advisable to recruit your board members before you file for incorporation because you may be required to provide details of board members. You have to ensure that board members are self-motivated, have a positive attitude, can work with a team and have strong work ethics. Where can you find persons that fit into this role? You can talk to your friends. You can also join LinkedIn groups of similar interest.

Step 4: Pick a Name:

You need to choose a name for your non-profit. The name has to reflect your mission statement at a glance. The name you pick depends solely on you.

Step 5: Have a Business Structure:

The next is to have a business structure in place for the organization. You can run your non-profit organization as a corporation, trust or an association. The business structure you pick will affect the management structure of the business.

Also read: How to Obtain a Business License: Get Your License In 6 Steps

Step 6: File your Paper Work:

The process of filing for paperwork differs for each state. The information to include when filing your paperwork comprises Name of Non-profit, name and address of board members, mission statement, and name and address of the founder or registering agent.  You can check the National Association of State Charity’s website to know how the registration process works in your state.

Step 7: Obtain The Necessary Permits:

There is a need to obtain the necessary permits to run a non-profit. Check the U.S.A Small Business Administration website to know the permits that apply to your organization.

Step 8: Apply for Tax Exemption:

First, you have to check if your non-profit falls under the organizations qualified for tax exemption. There are 29 organizations under Section 501 (c) of the Internal Revenue Code that enjoys tax exemption. You can check this page for the list of organizations that fall under the category. If your non-profit is qualified for exemption, you file the form 1023. This exemption is for Federal tax. You can also file for state tax exemption. The process of filing for tax exemption can take 3 to 12 months to complete.

Step 9: Compliance:

Even after you have incorporated your non-profit, there are other things you need to do to keep the company going. The first thing is to file a form 990 with IRS. The form shows your activities both administrative and financial activities for the period. If your gross receipt and assets are above $50,000, you file the 990 form. If it is under $50,000, you file the 990-N form.

How to Raise Funds for A Non-Profit:

The major problem most non-profits have is to raise funds to run the organization. There is a need to be creative when sourcing for funds for a non-profit. The following are options to source for funds for a non-profit

a. Apply for a government grant. You can find grants on platforms like grants.gov or foundation directory online.

b. Have member contribute or pay dues to run the organization.

c. Host an event and raise money from ticket sales.

d. Organize a fundraising event.

e. Reach out to corporate or individual sponsors for your organization.