How to Start a Nonprofit, Demystified

A simple guide to starting a nonprofit organization.

If you are passionate about helping or serving others in your community, you might consider starting a nonprofit program.

What is a Nonprofit Organization?

A nonprofit organization (NPO), also known as a not-for-profit organization, is an entity created to advance a social cause and provide a public benefit. In order to function as an NPO, this entity must file the paperwork and provide the information required to the IRS (Internal Revenue Service) in order receive designation as a 501(c)(3) tax-exempt organization. This allows the NPO to accept revenue from a variety of sources (individuals, corporations & foundations, among others) for the purpose of achieving the objectives described in its mission statement. The organization should use its ‘profit’ (remaining funds after paying operating expenses, including employee salaries) to accomplish its stated goal, usually in the form of financial assistance to help individuals or communities that are in need. These ‘profits’ can not be distributed to the organization’s unpaid shareholders, leaders or members who volunteer time and energy to help achieve the NPO goal(s).

9 Steps to Starting a Nonprofit Organization

Step 1: Choose your niche

It is important to know what services are already available in your community. You should be sure your efforts aren’t duplicating existing projects or programs. What kind of services or assistance will you provide to the community? Where will you focus your energies and resources?

Step 2: Register the name of your nonprofit

Before committing to a name for your organization, search to see if the name you want is available. Apply for your name through your state’s Secretary of State office. If available, register the name, usually at a cost of usually around $25-$50. Registering the name of your NPO will reserve the name until you file your Articles of Incorporation.

Step 3: Appoint a Board of Directors

Having a board of directors is a requirement for starting a nonprofit. You’ll need to list their names and addresses when you file for incorporation and tax-exempt status. Your board will also help you create your bylaws. Remember, you cannot pay board members for their services. Furthermore, they should have the experience and expertise to meet your operational needs.

Step 4: Create a set of Bylaws

Bylaws are a legal agreement between the organization and its board members about how the it will function . Bylaws state how your nonprofit will conduct business and make decisions.

Step 5: Get an EIN

Even if you don’t have employees, your organization must have its own federal employer identification number (EIN) to apply for tax-exempt status. You can apply for an EIN online by using the IRS’s EIN Online Assistant. There is no charge to have an EIN issued or to use the system.

Step 6: Filing your articles of incorporation

To receive federal tax-exempt status, your organization must be a corporation or a state-registered unincorporated association. You should file your articles of incorporation with your state office. Each state may have slightly different requirements and the cost to file your articles can range from $100 to $250.

Step 7: Applying for your Tax-Exempt Status

Typically you must either file Form 1023 or Form 1023-EZ to apply for tax-exempt status. Small organizations complete Form 1023-EZ. A small organization receives less than $50,000 a year and has assets of $250,000 or less. The cost to file Form 1023 is $600, while Form 1023-EZ costs $275.

Step 8: Apply for state and local tax exemptions

However, once the IRS has approved your organization’s tax-exempt status, you can apply to be recognized by state and local authorities as well.

Step 9: Find funding opportunities

Nonprofits rely heavily on donations. However, grant funding is also available to support programs, projects and services operated by nonprofits. GrantWatch.com has more than 5,000 grants currently available to nonprofits.

Free grant resources are available online to help with grant applications. We recommend viewing the sample grants, glossary of funding terms and online support to get started! With close to 8,000 total grants currently available, GrantWatch.com is the leading grant listing directory. A MemberPlus+ subscription is required to view full grant details, including eligibility and application information. For more information, you can also visit the Grantwatch.com FAQ page.