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How to Start a Nonprofit Organization 501(c)(3) (Step-By-Step Guide)


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If you are looking for ways to help others and leave your mark on humanity, starting a nonprofit organization could be your first step towards doing so. The whole goal of nonprofits is to make money for the cause or mission they are working towards helping. As a result of the good nature of these causes, the government provides them with some very lucrative benefits such as a tax-exempt status, access to more grants to generate money for their mission, reduced prices on U.S. Postal Service stamps, and more. However, despite these very lucrative benefits provided to the nonprofits, the owners and their workers do not make any money for themselves. This is essentially what allows for the government to give these benefits to them in the first place, because nobody is making any money and it is all going towards helping further society as a whole through various causes.

What is a Nonprofit Organization 501(c)(3)?

A nonprofit organization 501(c)(3) is an organization that is set up to further causes such as our public education system, helping the homeless, helping children, legal aid societies, churches, and more with no intent of taking home any money or profits for themselves. Nonprofit 501(c)(3)’s are tax-exempt, which means they are not required to pay any tax to the government on any level. Instead, they are expected to put all of their generated income towards helping further the cause or mission they are raising money for.

When is the Right Time to Start a Nonprofit 501(c)(3)?

Arguably the most important question to consider before getting started, how to know if filing for a 501(c)(3) is right for you. Ideally, you should file for 501(c)(3) status if you are looking to grow your nonprofit to a larger scale. If you are seeking extra assistance from grants to help scale your organization, seeking limited liability protection from potential lawsuits, want to add credibility to your nonprofit to increase funding, want to obtain tax-exempt status, or want to receive U.S. Postal Service discounts, then you may want to look into filing for 501(c)(3) tax-exempt status for your nonprofit organization.

Step-By-Step Guide to Starting a Nonprofit 501(c)(3)

  1. Choose a Name

Choosing a name for your nonprofit is a fairly straightforward process however, there are some things you must consider when doing so, such as making sure that the name of your organization is in line with the mission or goal it is working towards. This is because depending on the state you are filing in, there are certain naming guidelines you must follow such as no misleading terms or offensive language, and the organization’s name must be unique from other business names in the state. You will also want to conduct a name search within the state you are applying in to make sure the name you want hasn’t already been taken by another similar nonprofit. Lastly, see if the name would be available as a domain name for a website and secure it in case you have intentions of creating one right away or in the future.
  1. Appoint a Registered Agent

Appointing a registered agent is arguably one of the most crucial steps in setting up your nonprofit and holding on to your 501(c)(3) tax status after you receive it. You could elect to appoint yourself as the registered agent, someone within the company, or you may hire an outside company to act as your registered agent. The goal of having a registered agent is to have someone solely in charge of sending and receiving legal documents on your behalf, keeping you aware of legal summons or court filings, and reminding you to file necessary reports on time. They essentially make sure that you are doing everything the government requires so that you won’t lose your 501(c)(3) filing status. Failure to do so could result in fines or the government shutting down your nonprofit and revoking your 501(c)(3) status.
  1. Choose Board of Directors

You must choose a Board of Directors and have them appoint officers. The number of board members required varies by state and in order to be eligible for 501(c)(3) status, the board must be made up of at least three non-related directors to ensure there is integrity within the organization. Responsibilities of the directors include overseeing operations of the organization, making decisions as a group on behalf of the organization, creating policy, and hiring officers. The directors themselves have no authority as individuals over the employees or the organization.
  1. File Certificate of Formation

File a Certificate of Formation or Articles of Incorporation. This step will require information such as the entity type, entity name, registered agent, registered office, members in the organization, and more. Each form varies slightly by state so make sure you take a look at your state’s form and provide any other information that may be required.
  1. Form Operating Procedures

The operating procedure determines how the nonprofit will be run. It consists of bylaws and a conflict-of-interest policy. During the first organizational meeting, the bylaws and conflict of interest policy will be adopted. There are templates online to help you get started with forming your company’s operating procedure.
  1. Apply for Employee Identification Number (EIN)

Apply for an Employee Identification Number, also known as an EIN. This is what ultimately will allow you to file for 501(c)(3) tax-exempt status. Depending on the state you are filing in, they may or may not require a state tax ID number as well.
  1. Apply for 501(c)(3) Status

Last but not least, apply for 501(c)(3) status for your nonprofit. Before applying, make sure you do one final walkthrough to make sure you have your Articles of Formation filed, your organization’s bylaws and conflict-of-interest policy adopted, and you have received your EIN. Once you have these three things, you are finally ready to file for 501(c)(3) status.

Formation Services

If you are looking to bypass these steps and hire a third-party service to help with setting up your nonprofit and obtaining 501(c)(3) status, Harbor Compliance is an online licensing service that could assist you in this process.

How to Raise Money for Your Nonprofit

Raising money in the form of donations is huge for a nonprofit’s growth. There are a few ways to go about getting donations for your nonprofit. While both sending out solicitation letters or holding events is one way of raising money for nonprofits, online donations are quickly becoming the preferred way for nonprofits to raise money for their causes.

Ways to Raise Money for Your Nonprofit

Online Donations (Recurring/Nonrecurring)

Online donations that are recurring or nonrecurring are one of the best ways to raise money for a nonprofit, especially when it is recurring and that money can be relied on week after week or whatever the donation cycle is. The recurring option makes it easy for both the donors and the nonprofits.

Offer Corporate Matching to Encourage More People to Donate

Corporate matching is a great way to encourage donors to contribute to your nonprofit and scale operations quickly.

Hosting Parties or Events to Raise Money for a Cause

Hosting a party or event to raise money for a nonprofit can be very effective. With gifts being a common theme at parties, if the goal of the party is to raise money, then the people attending will feel more obligated to donate towards the cause, especially if a lot of people at the party are actively doing so and encouraging others to partake.

Text Message Campaigns

Text message campaigns are one of the newer ways of raising money for a nonprofit however, it can be extremely effective when it comes to reaching the younger generations. If you are looking to reach a different audience of people than you may be reaching with your other campaigns, starting a text message campaign could be a great way to bring in a different network of donors and increase your outreach as a whole.

Benefits of Having a 501(c)(3)

Tax Exempt Status
  • Being tax-exempt allows for a nonprofit to put all of the money it generates towards helping further their mission.
Better Public Reputation
  • Having 501(c)(3) status tells people that your nonprofit is legit and safe to make donations towards. Obtaining 501(c)(3) status will allow your nonprofit to reach more potential donors.
Grant Eligibility on Federal, State and Local Levels
  • With grants being another huge way that nonprofits generate money for their cause, 501(c)(3) status gives them access to more grants on all levels including private and government grants.
Never Have to Renew 501(c)(3) Status Once Achieved
  • Once you have achieved 501(c)(3) status, it never goes away as long as the nonprofit stays up to date with its financial reports, etc. This allows for a nonprofit to live on well past the founder’s lifespan, allowing for them to keep making an impact on the world well after they are gone.
Discounts on U.S. Postal Service Postage Rates
  • Discounts on postage may sound like a small benefit, but it can save a nonprofit a ton of money in the long run.
Donations are Tax Deductible for Donors
  • This is a huge incentive for donors to contribute to a cause, especially donors that have a lot of money and belong to a higher tax bracket. These are the type of donors you want to be a part of your organization because they have a lot more money to give compared to the average person.
Limited Liability Protection
  • This allows for the owner and its workers to be protected in the case of lawsuits or fines against the organization. Without this, the owners and workers run the risk of being held liable in these situations.

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