The Nonprofit FAQ
| Where to start when creating a nonprofit |
| Starting a new nonprofit is a difficult task. This FAQ item provides a lot of the details. For some more general commentary, see "Five Tips and a Warning" for people thinking about a new organization at http://www.nonprofits.org/npofaq/0/1520.html. IRS Publication 4220 (http://www.irs.ustreas.gov/pub/irs-pdf/p4220.pdf) offers a broad explanation of the federal side of this question. A key first point is that creating a nonprofit starts with establishing an organization under the laws of some state (usually a nonprofit corporation, as described in the next paragraph). Only after such a corporation has been formed can the process of applying for federal tax-exempt status begin (that's because the federal tax-exempt status is available only for corporations and similar entities). Further, not all federally recognized tax-exempt organizations are eligible to receive contributions that the donor can deduct from their personal income taxes; that special status -- recognition under section 501(c)(3) of the federal tax code -- requires that the organization meet special standards. A widely used resource is Anthony Mancuso's book How to Form a Nonprofit Corporation in All 50 States published by Nolo Press. You can purchase it online through Amazon.com by clicking on this link (and the Nonprofit FAQ will receive a royalty from Amazon which we will use to maintain this resource for nonprofits): Order http://www.amazon.com/dp/1413306470/?tag=internetnonprofi"> How to Form a Nonprofit Corporation now. The oddly named "For Dummies" series published in 2001 a Nonprofit Kit by Stan Hutton (formerly the editor of http://nonprofit.about.com) and Frances Phillips. It covers the subject of nonprofit organizations quite generally in a readable way, and includes advice for people contemplating starting a nonprofit as well as on many challenges that established nonprofits face in their work. The book includes a CD-ROM in both Windows and Mac formats with many additional resources. Order the http://www.amazon.com/dp/0764599097/?tag=internetnonprofi">Nonprofit Kit through Amazon.Com now; a royalty will be paid that will help to support the Internet Nonprofit Center. IRS Publication 557 -- "Tax Exempt Status for Your Organization" -- is a detailed presentation of options and procedures for applying for federal tax-exemptions. It is available online at http://www.irs.gov/pub/irs-pdf/p557.pdf (a large file). Grantmakers for Effective Organizations (an association of foundations that give special emphasis to nonprofit management) has a guide for funders considering support to a start-up organization on its website. The issues raised in this guide are things anyone investing time, thought or money in a new organization will want to think about. The .pdf file is available at http://www.geofunders.org/_uploads/documents/live/startupassessmenttool.pdf; for more information about Grantmakers for Effective Organizations, see http://www.geofunders.org/. Observers who have noted the rapid increases in the numbers of nonprofits in recent years have raised questions about the need for so many organizations and about the difficulty many of the new organizations will have finding the resources necessary to support their work. For s strong statement of doubts about the idea of starting new organizations, see Jack Siegel's commentary on the impulse to start a new charity to provide relief after a disaster (in this case, hurricane Katrina in August of 2005) at http://charitygovernance.blogs.com/charity_governance/2005/09/starting_a_char.html Many advisors suggest using an alliance with an existing organization as a way of testing the waters before going through the whole process of setting up a new nonprofit. Such an arrangement is called "fiscal sponsorship." The sponsoring organization oversees the financial affairs of the new effort and assures authorities that necessary standards are being met and the charitable purposes being achieved. Usually, a small fee is paid to cover the sponsor's costs during the start-up phase. See Fiscal Sponsorship: Six Ways to Do it Right from the Study Center Press if this idea of working as a sponsored program of another organization seems like a promising way to go. You can order this book from Amazon.com by clicking on http://www.amazon.com/dp/1888956070/?tag=internetnonprofi">this link (a small royalty will be paid that helps support this site). Or visit http://www.studycenter.org/scp.fs.html The Fiscal Sponsor Directory at http://www.fiscalsponsordirectory.org offers links to organizations that act as fiscal sponsors in many states. The National Network of Fiscal Sponsors provides networking and technical assistance for organizations that act as fiscal sponsors; see http://www.tidescenter.org/fiscal-sponsorship/nnfs/index.html The Free Management Library also offers advice and suggestions about fiscal sponsorship. See http://www.mapnp.org/library/finance/np_fnce/np_fnce.htm#anchor106593 Caution — The term "fiscal agent" is sometimes used in conversations about arrangements of this sort; it is an error. If a tax-exempt entity serves as an "agent" under the direction of a non-tax-exempt "principal" in this way it is possible that donors or supporters will find that their gifts do not qualify as tax-exempt (or deductible). For a fuller explanation of this distinction, read this discussion at the Foundation Center: http://www.foundationnews.org/CME/article.cfm?ID=3069. The National Center for Nonprofit Boards has a helpful checklist at their website; use this link to go directly to the file: http://www.ncnb.org/askncnb/faq7.htm The Free Management Library helps you answer the following questions:
See http://www.mapnp.org/library/strt_org/strt_np/strt_np.htm Added 8/23/99 -- CM Stan Hutton (nonprofit.guide@miningco.com) wrote in NONPROFIT on 1/29/98: There a many sources of information on the Web. You could begin with some FAQs such as Pamela McAllister's exempt.law site http://www.exemptlaw.com/faqs/formation/f2000forming.html I have some information (and advice to proceed carefully) at http://nonprofit.miningco.com/library/weekly/aa101197.htm Don Griesmann has written a comprehensive guide to starting a nonprofit with strong emphasis on the importance of having a business plan. His paper includes advice about what a business plan should include and how to prepare one -- in the nonproft setting. See http://www.idealist.org/media/pdf/FAQ/080123NP_Biz_Plan.pdf NOTE: This file is in Adobe Acrobat Portable Document (.pdf) format. You will need special software to open and read this document. This software is available without charge from Adobe. See http://www.adobe.com/products/acrobat/readstep.html Cynthia (CJ) Anderson of the American Red Cross in Phoenix, Arizona, (kirimaku@GOODNET.COM) responded to a reader of TALK (from PHILANTHROPY-REVIEW.COM) on January 2, 1998, with this advice onthings to think about in the early stages of developing an organization: Where are you going? Who are you helping? Do you have a mission and vision statement? Specially need a one liner - like a mantra - look to ARC - "When Help Can't Wait" "Neighbor helping Neighbor" or even Martin Luther King - "I have a dream." Who are you trying to help - one family, ten? What constitutes a family and what does their income level need to be? (Hint: do not try to go global - The American Red Cross is retooling now because they have discovered that grassroots and internet is where the energy is will be in the near future). Never miss a chance to get your name out there (make it a priority to get online effectively). Who are your volunteers? They will bring in donors through their affiliations both personal and workplace. They can open many doors for you organizationally. Your volunteer application will be a font of information you can pull from again and again. What is your budget? Your donors are going to be your neighbors and friends - how can you maximize that? Who can you partner with? Community parnerships greatly increase your chance of obtaining grant money. What specifically is your service - how do you deliver? My impression of thedirection the United Way is going (if that is a potential funding source for you) is to look closely at the numbers of population served and the socio-cultural demographic breakdown. How is experienced is your board? A) in business (and you are starting a business, make no mistake)? B) in community out reach and networking, i.e. getting others to buy into the program as volunteers and donors? Are they willing to do speaking engagements anywhere and everywhere to get your presence known? One thing is guaranteed - with a new organization and no track record, big dollars will not be forthcoming until you can demonstrate your presence (committment to stay) in the community and the energy that comes with a lot of small, local dollars and support. Do you have a plan for this? People give to where their heart is hooked. There are plenty of us that have "been there, done that" or lived dollar-to-dollar long enough to know "there but for the grace of god go I...." Your cause must be perceived as a good and just one. Make sure that everything you ask for is specific, take the time to know your intended supporters so you know their interests and passions...build off of them. "Will you give $100? I need accounting program evaluation assistance for 3 hrs a week for a month..." There are also lots of excellent how to books available to guide you. Consider looking for retired executives to be resource advisors to the board - there is an organization called SCORE (the Service Corps of Retired Executives) that has such retired seniors to draw from. The Local United Way also frequently has a Volunteer Agency attached to it that acts as a clearing house for volunteers of all ranges to match to agencies. This is going to be a long term effort. If you try to do this independently, from scratch, it will be a long and difficult effort. You may want to consider something new I am hearing about, where different NPOs are sharing common administrative costs under one roof - receptionist, accounting, fund raising, copy machine, etc. - much like many doctors have been doing. You can also consider partnering with an existing organization, that has services close to your interests, so you augment what they are already doing. For instance, if your interest was in helping middle income families who had lost everything due to disaster. You might partner with the Red Cross, - our help is very specific and very short term - 1-2 weeks for single family home disasters. You can get very hgh visibility with a partnership like that both for funding and clients. Since you indicated your interest was for families who suffered loss from illness or death - consider going with a hospital, hospice type partnership. Even large corporations like Motorola, Intel, American Express may be candidates for partnerships - scout among your membership. Just make sure that whoever you are partnering with is well organized and has an excellent community reputation and integrity that you are prepared to support and augment. Earlier thoughts from readers of soc.org.nonprofit and other sources follow. MISSION STATEMENT Through open discussion with the people who will be involved as volunteer leaders, define what it is you intend to do and how you will do it. A Mission Statement can be as short as one sentence and should be able to be defined in just one short paragraph. If you can't do it that concisely, maybe you're not sure what you really want to do. "ejuly" wrote on Mar 25, 1996: Here we go again spending time and energy on a mission statement. The time spent here would be better spent evaluating if the agency is accomplishing anything and to what degree or quality. Word smithing a mission statement serves no client or community. Just us professionals. And Tim Lannan responded on Mar 27, 1996: If wordsmithing becomes the objective, who can disagree. But my experience has been that without a clearly defined and understood purpose, not-for-profits start to drift and loose focus, wasting resources and not accomplishing what they should. Time can and should be well spent in making sure that the organization's purpose, i.e., mission, is relevant. This is one of the most important things a NFP board does; done well it will make sure the organization is actually accomplishing something, providing staff, donors, clients and the community a beacon that will guide the work of the agency. "If you don't know where you're going, you're sure to end up someplace else..." LEGAL Incorporating; documents needed; filings. WerthWhile contributed these additional thoughts in soc.org.nonprofit on August 11, 1995 on the subject "Just starting out--help please": Wow! I do not envy you in wanting to start a non-profit. I think the biggest mistake that I have seen people make is in thinking that they must obtain a non-profit status through the IRS before they start. It costs them $1,500 for a CPA and six months in time, and then they can't get their idea off the ground anyway. I would recommend that you write up your ideas in detail, including what your non-profit would do, why this is different from what other non-profits offer, and so forth. Write it like a business plan (plenty of books in the library tell you how). I would really encourage you to conduct a lot of research about similar organizations. You might even want to intern with one before setting up something similar. I can think of few non-profits that are really different from others (MADD is one example). Then, shop your document around to various churches or other non-profit organizations that might act as a sponsor for you. You can use their non-profit status to raise money, with their permission. Some might want a small percentage to act as a sponsor, and that's OK. After that, I would set up a board of directors to give you guidance and help you raise money. These should include a CPA and a lawyer, and specialists in the field you're working in (doctors if you want to open a clinic, for example, or social workers if you want to help the homeless). Good luck in your efforts! Reposted with additions and minor editing January 7, 1999 -- PB; updated 8/23/99 -- CM; 11/18/99, 1/18/00, 6/28/01, 7/8/01, 8/17/01; link updated 7/3/05; added Siegel's blog 9/25/05; corrected several items and improved formatting; Fiscal Sponsor Directory added 1/7/09; caution about use of the phrase "fiscal agent" added 2/18/09 --PB |