If you feel inspired by the idea of helping your fellow humans, you may be motivated to start your own nonprofit organization. Siena Heights University has a Public Services Administration Major that will educate you about starting a nonprofit organization.
What is a Nonprofit Organization?
Nonprofits can be set up to perform many things; often—but not always—they are formed to help people who are struggling. But nonprofits exist for other purposes, as well. There are nonprofits geared toward public awareness, support for specific political or personal causes, and many others. The government carefully regulates nonprofit organizations. So, if you do plan to start a nonprofit in Michigan or any other state, it’s both helpful and important to follow certain steps.
How to Start a Nonprofit Organization
If you’re excited about the possibility of starting a nonprofit, but you’re not sure what steps to take, read the 8 steps below on how to start a nonprofit organization.
1. Determine Your Purpose
The very first thing you should do when conceiving your idea to start a nonprofit organization is to determine what its purpose will be. Nonprofit organizations are tax exempt, but the Articles of Incorporation must include a purpose statement. Before you go any further, it’s essential to carefully consider and outline your nonprofit organization’s purpose.
When doing so, consider what nonprofit organizations already exist. First, it’s not great to duplicate another organization’s efforts. You may make more strides in carving your own path. Second, remember that you may be relying on public donations. If there are two or more nonprofit organizations serving the same purpose, they will be competing for the same dollars. That will make it even more difficult to persuade donations to your charity over another one, and donations are already hard enough to garner.
Here is where you can avoid a mistake that others have made. Note that 501(c)(3) nonprofit corporations are tax exempt, and their purpose serves the public interest, i.e., they are considered a charity. 501(c)(4) through 501(c)(29) nonprofit entities are tax-exempt but do not have a charitable purpose. Many nonprofit organizers have seen their downfall when their purpose went against the regulations set by the IRS in terms of entity. You must bear in mind what entity (for filing purposes) you will choose in addition to your nonprofit organization’s purpose.
2. Choose a Name
This step is deceptively difficult. You may already have a name in mind for your nonprofit organization, but unless it fits certain criteria, you might not be able to use it, at least not in its exact form.
Because you will be registering your nonprofit organization with the state, the name cannot already be in use by another business entity. Note that even if the other business is not a nonprofit organization, you can’t use the same name. Be careful to look up your company’s name in both state and federal trademark databases to ensure that it is unique.
Next, you must use the identifying incorporated word or initials after your name. For instance, if you want to use the name, “Acme Charity,” and you are incorporating as an LLC, then you have to register the name as “Acme Charity, LLC.” If it’s a corporate entity, you have to register the name in your state as “Acme Charity, Inc.” and so forth.
You should choose a name that reflects the purpose of your nonprofit organization. This isn’t a hard and fast rule, and many nonprofits don’t follow it, especially if their purpose is very general. However, in most of those instances, the name itself is so well-branded that the public knows who is behind it. One example of this is the Bill and Melinda Gates Foundation.
Unless you have a heavily branded identifier, choose a name that is easily remembered. Succinct names are best, such as “Water for People” or “Rise Against Hunger.”
Finally, don’t make the terrible mistake that many nonprofit organizers have made that got them into a tough spot. Before finalizing a name, make sure that the domain name is available. Many people new to choosing a business name have discovered to their dismay that the name is already being used online. This confuses the public and can have disastrous results by making your nonprofit organization look unprofessional. The minute you come up with a great name that meets all the above criteria, secure the domain name for a minimum of two years or even more.
3. Write the Bylaws
Bylaws are the governing rules by which your nonprofit organization will operate. The bylaws act as both a guide for your charity and a necessity when it comes time to file your organization with the IRS. Your organization’s bylaws may vary, but they should include a few essential guidelines, such as:
- The voting procedure
- Where and when board meetings are to be held
- How voting disputes will be resolved
- Who the board members are and their titles
- The process for creating and disassembling committees
- The process for altering the bylaws
If you already have a board in mind for your nonprofit organization, then the first act of that board will be to write the bylaws. If it’s just you for right now, consider yourself the sole member of the board. It’s up to you to write the bylaws.
If this is your first time setting up an organization, or if you have not yet enrolled in a Public Services Administration Program at Siena Heights University, know that there are many templates for bylaws specific to nonprofit organizations. You don’t need to reinvent the wheel when it comes to your bylaws. Find a template that looks like it mostly fits, and then edit it to suit your circumstances.
4. Select a Registered Agent
By law, you must have a registered agent. The role of this agent is to manage communications by outside parties to ensure they are responded to and addressed or forwarded to the correct parties in your organization. When you register your entity, you have a choice in which state to register it in, even if you don’t live there. For instance, if you live in Michigan, you can still register your nonprofit organization in Delaware, Wyoming or elsewhere. But wherever you register your entity, that’s where your registered agent must reside. There are affordable and reputable registered agent services that you can pay for to act as your nonprofit organization’s registered agent. Just don’t make the mistake that some others do and assume that the registered agent must be a formal party. If you live in the same state where your entity is registered, you can be the registered agent and not have to pay for this service.
5. Appoint your Executives
The most successful nonprofit organizations have executives in charge of running operations. You’ll want to have a board of directors, CEO and some administrative staff at a minimum. When you have board of directors, don’t think of it as giving up control of your organization. Instead, think of it as ensuring that you have a diversified point of view that will inform and guide the mission of your nonprofit. One mistake to avoid is to only have family members on your board. It’s best to have at least one member of the board who is not family, in order to make sure there is sufficient objectivity.
6. File Articles of Incorporation
The articles of incorporation, also known as a certification of formation or a charter, are a series of documents submitted with a government agency to legally establish a corporation’s founding. This sort of legal document includes basic information about the company, such as its name and address.
The business owner and the company are separated by the articles of incorporation. The articles of incorporation establish the business as a separate legal entity. Incorporating a corporation lowers a business owner’s personal risk by making the company financially accountable for its obligations and legally responsible in the event of a lawsuit. You will file your Articles of Incorporation with your state and pay an initial filing fee. In return, you will receive an official notice of formation.
7. Apply for Tax Exempt Status
The next step is to file a Form 1023 with the IRS to ensure you have tax exempt status. First, get an Employer Identification Number (EIN) from the IRS. This is free and takes only minutes. Then, using the Form 1023 checklist, double-check that you’ve included everything in the application.
After receiving federal permission, you must ensure that the organization is tax-exempt at the state and local levels; that is, that it is exempt from state income tax, sales tax, and property tax.
8. Get your State License and Business Permit
You’ll need a business license to manage sales and employment taxes after you’ve successfully incorporated your charity. A nonprofit organization is only able to function locally by obtaining a local business license. Depending upon your jurisdiction, additional governmental regulations may apply to fundraising efforts, in which case you may need a special license. Your town hall can help you to get the necessary state license and business operating permit. Be sure to bring all your backup documentation so the employee helping you understands that you’re going to be running a nonprofit organization in the state.
Why Start a Nonprofit?
Congratulations on being the type of person who believes in the power of nonprofit organizations. You’re the reason why someone should start a nonprofit. Your actions and the work you do could lead to helping many people. You’ll need skills and much knowledge to run your organization over time and that’s where Siena Heights University can be of great help.
Learn More, Today
Siena Heights University’s bachelor’s degree program in public services administration covers all the things you’ll need to know to run a successful nonprofit. The coursework is designed for working adults just like you. If you are interested in learning more about the public services administration degree program, reach out to Siena Heights University, contact an admissions counselor or request more information today. We look forward to serving your needs!
