How To Start A 501(c)3 Non-Profit Corporation And Become Tax Exempt

Thinking About Starting a Non-Profit Organization?

Starting a non-profit is a huge undertaking. It's a noble goal and an incredibly fulfilling thing to do, but it also needs to be said that it carries with it a massive amount of work, heartaches, headaches, and a good deal of up front cost to boot. It is not something to be taken lightly, so you'll definitely want to be sure that it's right for you.

Still with me? Great! Then let's get you started off on the right foot in setting up your very own non-profit. In this article, I'm going to assume that you have already decided that the cost and effort are worth it, so I will not go into too much detail on trying to convince you. Instead, we'll cover what you actually need to do to start heading down the right path to a successful sanctuary and some of the steps that go into it. When I was beginning the process to incorporate my own non-profit, Rescue Tails Animal Sanctuary, most of the articles and guides I could find were more about why you would or wouldn't start a non-profit, and less about how to actually go about it. My aim is to remedy some of that by simply writing a beginners guide of my own. So let's jump right into it, shall we?

The First Steps Towards Incorporation

Choosing a name: Your first step towards creating a non-profit is to pick a name. this sounds obvious, but it's actually a little more involved than you might think to begin with. Unfortunately, with choosing a name comes research into whether or not that name is already incorporated and if you can legally use it. You do not want to step into a trademark or copyright war with an existing entity. Once you have a name in mind, you can generally go to the secretary of state website for your state and do a search for business names. If your name is taken, tweak it and keep trying until you find a name you both love, and is available for incorporation. It can take a few tries, so try not to be discouraged.

Research your community need: So now you have a name. The next step is research. What need is it you plan to fill with your non-profit? Is there already one or more organizations filling that need in the area? If there are, there may still be room for one more - each out and ask! A lot of times, non-profits will fail because there simply is not enough of a need for them in their area of operation. For example, are you planning a non-profit animal shelter or rescue? Research other shelters and rescues in the area, find out what animals they service and how much overflow there is remaining. Are there specialty animals that shelters can't take in that you can help server a need for? Think about the specifics of how you will fit into your community and what aid would be most valuable.

As part of this research, think about how you will raise money for your organization. Are there other non-profits that will be soliciting the same donations and going for the same grants? You don't want to be in direct competition with other organizations in your area. Overlap is unavoidable, but you can often tailor your organization to go after different grants by specializing in a different need or service. Multiple animal shelters and rescues can exist in the same area and work together wonderfully, but usually that works the best if you are advocating for different animals or reasons. One of the best ways to work on this step is to talk to other non-profits, or even volunteer your time with them - they're almost always happy to help, and to have help!

Choose a board of directors: You've got a name, and you have identified a need for your non-profit organization. Now you start the governance legwork. Your selection for a board of directors is a hugely important decision to make. You want to select people who share your mission and values as an organization - if they don't care about what you're trying to accomplish, then they won't be a useful part of your team. Your initial board of directors will be a group of people invited by your incorporating team - those of you who are actually founding the non-profit. Choose wisely, and don't just choose people that you know because they're an easy name to put on the list. Your choices do not need to be experienced as business organizers, but they do need to be willing and able to learn how to operate a non-profit organization.

Also of important note in this - select people that you trust to be honest and on the up and up. The board of directors of a non-profit can have a lot of power in their hands, and it is important that they not be the kinds of people who will abuse that power or turn their work for the organization into personal or financial gain. They must be dedicated to the ideal of the non-profit and be willing to put in the time and work it takes in an honest and straightforward way. It can be tempting to add people you do not know to your board of directors simply because they possess the qualifications on paper to be on the board - do not do this unless you have researched these candidates extensively and can trust them completely! It is better to have someone with less experience and more passion than it is to have someone you cannot trust who may cause problems legally and personally.

File your articles of incorporation: Next you'll want to get started filing your articles of incorporation. These are the documents that will be received by your secretary of state. The articles of incorporation forms can be found on your secretary of state website, and are relatively straightforward to fill out and file. There is usually a small fee associated with the filing. For example, North Carolina charges a filing fee of $60, so be prepared to pay a small fee for this. Important Note: There will be dozens of "services" that offer to file your articles of incorporation for you for a "small fee". Do not use them - it is always cheaper and more effective to do it yourself! The language and mission you put into your articles is important, and should be done by your incorporating group, not a faceless attorney or web service. It will be substantially more expensive to use an outside service, and could come back to bite you later.

Your articles of incorporation will need to include the following information.

1. Your non-profit name

2. Your corporate address - this can be your home or that of your registered agent, as well as a corporate office if you have a physical space already.

3. Your registered agent - this is the person who can legally receive certified mail and state correspondence for your non-profit. Often this is the person doing the actual filing, usually one of your founders.

4. A list of your board of directors

5. Your non-profit mission or purpose. A small section of your articles of incorporation will be used to justify why you are starting this organization and how you will serve your community.

Your articles of incorporation will also need to include some specific tax language to ensure you qualify for tax exempt status when it comes time to file for that. Refer to this page on the IRS.gov website to learn how to formulate your tax language. They conveniently provide a fill in the blanks style template to copy into your articles of incorporation.

Write your non-profit bylaws: Once you've gotten your articles ready and filed, it's time to write your non-profit bylaws. Bylaws are the document your organization will use to run itself, solve disputes, elect directors, and just about every other rule that needs to be followed. Not every state requires a non-profit organization to have bylaws, but it is important to write them and have them available regardless of state requirements. They are an extremely important tool for keeping a non-profit running smoothly and to avoid bumps in the road later on. Your bylaws will be the guidelines that your board of directors uses to do just about everything for the non-profit, and limits that they can and cannot do without voting and majority decisions.

Writing your bylaws can be time consuming and difficult, but it is an important step to take and learn about. This page will tell you everything you need to know about your bylaws, giving tips, templates, and content to help you write them quickly and efficiently, as well as what information to include. Generally speaking, your bylaws will include rules and regulations surrounding your board of directors, election processes, employee rules and requirements, compensation, term limits, and everything else regarding the governance of the organization. There are extremely valuable resources to be found, so do your research while you are writing your bylaws and make sure you have them good and ready either before or shortly after you are incorporated.

File for tax exempt status: Once your bylaws are all set and you've received your approved articles of incorporation, it's time to file for your 501(c)3 status! Congratulations on making it this far - even just becoming incorporated as a non-profit is a big deal and should be celebrated! The next step is a big one though - tax exemption! Receiving your 501(c)3 status is a huge step for a non-profit organization. It lends you a much clearer air of authenticity, marks you as a public agency, and opens the door to a whole new world of grants and fundraising opportunities. It also lets donors write off a chunk of any donations made, and makes most donors more comfortable knowing they are donating to a public cause and not a private fund.

Filing your tax exempt status is done with form 1023 on the IRS website. If your non-profit is smaller and has less than $250,000 in assets, you can file the shorter form 1023-ez instead. Information on filing these forms can be found here. I am not going to go into detail on filing these tax forms due to potential liability issues as I am not a tax attorney, but there are tons of resources on the IRS website to help you out, and largely the forms are not too complicated.

Once you've filed your 1023 form, you get to wait. Determinations can take anywhere from 8 weeks to eight months depending on your state and the size of your organization, as well as whether or not you file with form 1023 or 1023-ez. While you are waiting, use your time to build the infrastructure and community support for your non-profit. You may not be 501(c)3 yet, but that doesn't stop you from working on your mission goals! Once you receive your determination letter in the mail, celebrate! Your letter will tell you a lot of information. Pay close attention to what it says, and keep it in a safe place. It will list your effective tax-exemption date, your annual filing period, and your annual tax return requirements.

Congratulations! You've reached non-profit status and have filed what you need for tax-exemption. It's a long process, but well worth the effort when it pays off. Now you can start working to fulfill your mission in earnest, go for grants and donations, and really start working within your community for the good of everyone involved.

Welcome to the world of charitable work. We're so glad to have you!