A corporation is created and regulated by state law. It is a legal entity separate from the people who own, control or manage it. State corporation, as well as federal and state tax laws, view the corporation as its own entity that can enter into contracts, incur debts, and pay taxes. Advantages to forming a nonprofit include tax exemptions, protection of personal assets and the fact that donations to a 501(c)(3) nonprofit can be claimed as tax deductions.
Food for Thought – Things to Think About and Steps to Take
Create a strategic business plan. This will form the basis for developing a more detailed plan to help track the direction, progress and growth of your nonprofit. The plan can be used as a checklist to help with deliverables and milestones to ensure that you meet your goals and objectives.
Develop a mission statement. This is a clear, concise description of the reason (business purpose) your nonprofit exists and the services you will provide.
Create a vision statement. This is more far-reaching and should briefly describe how you will meet your goals and objectives.
Identify your goals and objectives. Outline activities, programs, projects and/or services to support your mission. List your objectives. These support your goals and are action items whose outcomes are measurable. Objectives show what will be accomplished when you meet your goals.
Identify key strategies and resources. Make a list of your resources, including cash assets, furnishings, equipment, staff and volunteers, their expertise and skills. Be realistic – include items you still need. Create a list of strengths, weaknesses and opportunities and identify possible obstacles to your business success.
Choose a business name. The name must comply with the legal requirements of your state’s corporate filing office, usually the Secretary of State’s office. Contact them for guidelines.
File a certificate or articles of incorporation. Your state’s corporate filing office can provide you with nonprofit articles of incorporation – either a blank form to complete or a sample to guide you in creating your own articles. The forms are filed either with the Secretary of State or the State’s Attorney General’s office and are state-specific. There is a small fee.
Apply for state and federal tax exemptions. After the filing office has returned your articles, submit applications to the IRS and State Board of Equalization for any federal and state exemptions for which you are eligible. Check out www.irs.gov for these reference materials: IRS Package 1023, IRS Forms 8718 and 1028, and IRS Publication 557.
Obtain an employer (federal) tax identification number(EIN). You will need this number in to open a business bank account. There is no filing fee.
Open a corporate bank account. Establish procedures for issuing checks and identify individuals who will be authorized to sign the checks.
Draft corporate bylaws. These will govern and guide your nonprofit’s business activities. You can find samples online or hire an attorney. Bylaws define the rules, processes and procedures for electing directors and officers, holding meetings and voting and provide for the legal, orderly and day-by-day operation of your business.
Select a board of directors and establish board policies and procedures. Be sure to find out the minimum number of board members required by your state. During the first board meeting, the initial board of directors should acknowledge receipt of federal and state tax exemptions, discuss and adopt corporate bylaws, and elect subsequent board members to manage and conduct your business activities.
Develop plans for fundraising. These can include grant writing, direct mail and website appeals, sponsoring community events, and planned giving programs (employee donations and estate planning).
This brief overview is meant to give the reader an idea of what will be involved in forming a nonprofit and to serve as a checklist. Follow these steps and you will soon be up and running!