There is some misunderstanding on the benefits of starting a new nonprofit. Some people think that they can start a nonprofit to quickly generate income, particularly in times of poor economy. This is an approach doomed to failure. On the other hand, some people start a new nonprofit to address some strong unmet need in the community. They have a better chance of success.
Establishing a nonprofit organization can be an inspiring way to give back to your community and help those in need. In this article we offer general guidance on how to form a nonprofit organization. Please note that specific steps may vary for each country. We recommend consulting with a legal or tax professional for detailed assistance.
Step 1: Research
Today, there are many ways to make an impact in your community and starting a nonprofit is just one of them. Starting and sustaining a nonprofit can be significantly challenging. Many nonprofits have extremely limited funding. There are currently more than one million charitable nonprofits in the United States alone.
Before starting out, you will need to identify the work that you as a nonprofit will do, and to research whether there are other groups already engaged in the same or similar work, and to ensure that starting a new nonprofit is the right solution. Click here to find out the questions you need to ask before you start a nonprofit.
Step 2: Create your Mission Statement
The mission statement communicates your nonprofit's goals and it's area of service. Every decision and action in your organization should support and further your mission. The mission is all about meeting a need in the community - it is the most important reference point for Board members when doing their jobs.
The following tips may be helpful to your team when writing the first, basic mission statement.
- The mission statement describes the overall purpose of the organization. It addresses the question "Why does the organization exist?" If it is primarily to meet a public need in your community, then starting a nonprofit is indeed a good idea.
- The statement can be in a wide variety of formats and lengths. It can range from a few sentences to a few pages. At this stage in the development of the nonprofit, it might be best to keep your mission statement to at most about a quarter page.
- Consider at least these specific aspects of the mission:
- The primary benefits and services to clients – the difference in the community that the nonprofit aims to make.
- The groups of clients who will benefit from those services.
- The values that will guide how the nonprofit will operate.
- How you would like others to view the nonprofit.
- It is often useful to refine the first, basic mission statement. Add or delete a sentence or a word from the mission statement until your team feels that the wording accurately describes the purpose of the new nonprofit organization. If you have any people in mind to serve as your initial group of Board members, then have them review the wording of the mission statement.
Step 3: Choose a name for your organization.
Although each country has its own set of regulations, you can expect some general rules to apply: The name cannot be the same as the name of any other corporation. About half of all US states require the name to end with a corporate designator, such as Corporation (Corp.), Incorporated (Inc.) or Limited (Ltd.).
Step 4: Create a business plan.
A business plan can help a nonprofit specify how it intends to achieve its mission. It also can be used to outline a new project or venture. A business plan is the action plan, identifying the tasks, milestones, and goals, but also identifying the potential for success and the potential risks ahead.
Tools for Business Planning
Free sample nonprofit business plans (Bridgespan)
More free sample nonprofit business plans (Bplans)
Step 5: Develop your board.
Your board fulfils a variety of functions and roles, including legal responsibilities. In order to carry out these duties effectively, the board will change as your organization grows and matures. Your board is the governing body of your organization. It is essential that appropriate training be provided to the board members to ensure long-term success.
Grantspace.org offers the following training for developing your board:
Your Board and Fundraising webinar - An Introductory Class for Nonprofits. Includes information on getting your board involved in the fundraising process.
Before You Seek a Grant - A Checklist for New Nonprofits, discusses how to develop a governing board for a new organization.
Step 6: Incorporate your Nonprofit
Having a formal structure will give credibility to your organization.
The corporate structure limits the liability of the organization's officers and directors.
Grantspace.org has information on how to incorporate your nonprofit.
Step 7: File for Tax-Exempt Status (US specific)
Nearly all organizations that are nonprofit wish to be tax-exempt as well. Many charitable organizations, for example, are nonprofit organizations and are recognized by the federal government as being tax-exempt. But becoming nonprofit and becoming tax-exempt are different processes, done at different times (usually), and by different government agencies.
A first important distinction to make is that granting nonprofit status is done by the state, while applying for tax-exempt designation (such as 501(c)(3), the charitable tax-exemption) is granted by the federal government in the form of the IRS.
To obtain 501(c)(3) status, a nonprofit corporation must apply to the Internal Revenue Service for recognition of tax exemption by filing IRS Form 1023.