If you’re interested in launching a nonprofit, you’ll need to make a series of decisions related to the legal structure and financial foundations of your company before your office can open its doors. Being tasked with making a multitude of consequential decisions can be intimidating and stressful. However, working through this list of tasks can also be inspiring. As long as you keep your vision for how your nonprofit could benefit the world at the forefront of your mind, the process of launching your new company shouldn’t become too overwhelming for long. Understanding your motivation for starting your nonprofit will generally help you to power through any decision-making tasks that seem particularly daunting.
What Kind of Nonprofit Do You Want to Start?
Not all nonprofits are created equal. There is no single definition of what a nonprofit organization is. Most of the time, Americans use the term “nonprofit” to indicate that an organization qualifies for federal and state tax exemptions because that organization provides a specific kind of public service and doesn’t operate in a for-profit capacity. Some of the many kinds of organizations eligible for tax exemption status due to the nonprofit nature of their operations include:
- 501c3 Organizations – Religious institutions, other public charities, and private foundations
- 501c4 Organizations – Social welfare organizations, social advocacy groups, volunteer fire companies, and homeowners associations
- 501c5 Organizations – Labor unions, agricultural and horticultural organizations
- 501c6 Organizations – Chambers of commerce, trade or professional associations
- 501c7 Organizations – Social and recreational clubs
- 501c8 Organizations – Fraternal societies
- 501c9 Organizations – Employee beneficiary associations
- 501c10 Organizations – Domestic fraternal associations
- 501c19 Organizations – Veterans associations
- 501k Organizations – Child care providers
In all, there are 27 different legal classifications for nonprofit organizations. Distinct eligibility requirements and restrictions related to taxation, lobbying, and electioneering affect each specific type. Your nonprofit organization will be impacted by legal and tax exemption criteria that govern the type of entity you hope to launch. It is therefore generally a good idea to speak with an experienced attorney about the legal eligibility requirements associated with forming different types of nonprofits in your state before committing to a plan of action.
Incorporating Your Nonprofit
Nonprofit founders generally need to take many of the same steps that startup corporations do to register their operations with the government. The primary difference between incorporating a for-profit venture and incorporating a nonprofit organization is that nonprofit founders must formally apply for tax exemption status with both the federal Internal Revenue Service and the state in which they are incorporating.
In addition to applying for tax exemption status, incorporation involves choosing a business name, obtaining any licenses or permits your organization will need to become operational, and appointing a board of directors. Speak with an attorney about the particular responsibilities you’ll need to assume and requirements you’ll need to meet in each of these areas governed by state laws of incorporation. Similarly, you’ll need to file formal paperwork and a filing fee with your state government in accordance with its unique nonprofit incorporation regulations.
Finally, even if your state doesn’t require that you do so, you’ll want to draft bylaws. Bylaws serve as a sort-of foundational “operations manual.” Most of the time, a nonprofit’s board of directors creates these guidelines. If your nonprofit is a smaller operation, you can speak with your attorney about whether you need full board participation when crafting this important document.
Many of the bylaws you create will be concerned primarily with how your organization will function on a daily basis. For example, you’ll want to address the specific roles assigned to different directors and officers. You’ll need to specify the size and functional scope of your board of directors. You’ll also want to address procedural concerns related to elections, meetings, officer appointments, conflicts of interest, grant distribution and other “big picture” practical issues. However, you’ll also want to include a statement of purpose, or you’ll risk losing your vision under the weight of endless day-to-day minutiae.
Nonprofit-Related Legal and Financial Guidance Is Available
Schedule a consultation with an experienced attorney at LawTrades today. Our team of knowledgeable lawyers has assisted thousands of startup founders, nonprofit organization administrators, and new business owners to navigate their legal and financial needs. From financing the launch of your nonprofit to incorporating your company, protecting valuable intellectual property to addressing ongoing compliance concerns, our team can both handle your company’s needs as they arise and help you proactively plan for the future. We look forward to learning about your vision and serving that vision however we can.