• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Advertise
  • Submissions
  • About Us
  • Contact Us
  • Apr 19, 2021
  • Startup
    • Creating a Plan
    • Funding a Startup
    • Franchise Center
    • Getting Your Office Ready
    • Making Your Business Official
    • Marketing Your New Business
    • Personal Readiness
  • Run & Grow
    • Customer Service
    • Human Resources
    • Innovation
    • Legal
    • Operations
    • Risk Management
  • Leadership
    • Best Practices
    • Communication
    • Green Initiatives
    • Open Culture
    • Strategic Planning
    • People Skills
  • Sales & Marketing
    • Advertising and Lead Generation
    • Marketing Innovations
    • Marketing Plans
    • Online Marketing
    • Relationships
    • Sales Activities
  • Finance
    • Budgeting and Personal Finance
    • Payments and Collections
    • Tax and Accounting
    • Pricing Strategy
    • Working with Investors
    • Working with Lenders
  • Tech
    • eCommerce
    • Hardware
    • Software
    • Security
    • Tech Reviews
    • Telecom
  • Shop

SmallBizClub

Helping You Succeed

Tax Bandits banner
Home / Ask SmallBizClub / Starting a Business / How do I go about forming a Non-Profit business?
How do I go about forming a Non-Profit business?

How do I go about forming a Non-Profit business?

1466 Views

Jun 28, 2013 By Matt Tarkenton

How do I go about forming a Non-Profit business?

Answer:   There are various considerations (legal, tax, general operational, etc.) that must be addressed when starting a nonprofit. Forming a nonprofit business first involves the determination that your planned activities will qualify for an IRS nonprofit exemption. Then, you form a business entity (typically a corporation) in your state and file for nonprofit exemption with the IRS. Once you receive your nonprofit exemption from the IRS, you may also need to apply for a nonprofit exemption with the state. The following are additional comments and helpful information that you can use in forming and structuring your nonprofit:
Nonprofit purpose, exemption and operations: Nonprofit corporations exist not to make money, but to fulfill one of the purposes recognized by federal law: religious, charitable, educational, scientific or literary. The primary advantages of a nonprofit organization are that it does not pay income taxes and can, under certain circumstances, more readily access or qualify for federal loans and public and private grants. The main disadvantages are that it cannot be used to generate profits for the owners; the business purpose must conform to IRS regulations and the administrative burden of maintaining nonprofit exemption status. While you can take a salary as an employee of the nonprofit, you cannot take profits from a nonprofit organization in the way that you can from a for-profit business. You can review additional discussions of nonprofit organizations at the following websites:

  • What Are the Advantages and Disadvantages of Becoming a Non-Profit Organization: grantspace.org
  • Before You Incorporate as a Non-Profit – Pros & Cons: about.com

Whether your planned activities will qualify for IRS nonprofit exemption status will depend on all of the facts and circumstances. To better understand the nonprofit qualifications and filing requirements, you can review the following IRS websites:

  • Private Foundations: irs.gov
  • Tax-Exempt Status for Your Organization: irs.gov

Form 1023 is used to request tax-exempt status from the IRS. Form 1023 and instructions and related information can be found at the following websites:

  • Changes for Form 1023: irs.gov
  • Instructions for Form 1023: irs.gov
  • Frequently Asked Questions – Form 1023: irs.gov

Additional information on forming a nonprofit and on nonprofit operations can be obtained from the following websites:

  • How Do I Start a Non-Profit Organization? grantspace.org
  • Non-Profits Overview: nolo.com
  • How to Form a Non-Profit Corporation: about.com

Publication:

  • How to Form a Non-Profit Corporation: nolo.com

Nonprofit formation: Nonprofits can be organized under various entity structures; however, the C corporation structure is often used because it meets the personal asset protection criteria and offers an efficient governance and management structure. The specific forms and filings vary by business entity; but, the basic steps to forming a corporation are reserving a business name and filing Articles of Incorporation and other appropriate forms with the State. Also, you have founder meeting minutes, director meeting minutes, bylaws, Federal Tax Identification (ID) number, and other business entity governance issues. Generally, the least expensive method of forming a corporation or other business entity is preparing and filing the paperwork yourself. However, we normally recommend that first time filers form a business entity through a lawyer or with incorporation services.

For drafting and review with your lawyer, you can find information on developing nonprofit bylaws and samples at the following websites:

  • How to Develop Bylaws for a Non-Profit: ehow.com
  • By-Law of Non-Profit Corporation Form: lectlaw.com

In addition to Articles of Incorporation and Bylaws, corporations should have, at a minimum, minutes to document founder organizational meetings, Board of Director elections, officer elections, bank account authorization, and other decisions regarding major contracts and important business issues.

Nonprofit businesses are generally required to obtain a Federal Tax ID number, also known as a Federal Employer Identification Number or EIN, from the IRS. You can find EIN information and obtain an EIN for your nonprofit through the following IRS websites:

  • Do You Need an EIN: irs.gov
  • Employer ID Numbers (EINs): irs.gov

Nonprofit fundraising issues: Unless you have some type of affiliation or sponsorship with an existing nonprofit organization, you should form your nonprofit foundation before conducting fundraising activities due to the potential income tax and personal liability issues discussed below. Also, if your intention is to conduct tax deductible fundraising activities, then you would want to have your 501(c)(3) exemption approval before starting the fundraising activities. Some nonprofits do not seek 501(c)(3) exemptions, but fundraising is generally more effect if the charitable donations are tax deductible for the donors under a 501(c)(3) exemption. You can review additional fundraising issues and considerations at the following IRS and nonprofit industry websites, which explain:

  • Do I Have to File for Tax-Exempt Status to be a Non-Profit? about.com
  • Can Non-501(c)(3) Organizations Get Foundation Grants? grantspace.org

Professional assistance: Forming a nonprofit can be a difficult process. If you need to analyze the personal and business legal and tax implications of a nonprofit, we recommend that you consult with a local lawyer and tax advisor.

Filed Under: Starting a Business

Matt Tarkenton

Matt Tarkenton

Matt Tarkenton is Executive Vice President at Tarkenton Companies. He was part of a group that started Renova Partners, a boutique investment bank, and was recognized as a “40 Under 40: Up and Comer” by the Atlanta Business Chronicle in 2009. Matt performs business planning and marketing training for hundreds of professionals across the country, and co-hosts a weekly coaching program on entrepreneurial education. Matt graduated from Princeton University, where he was a member of the 1989 Ivy League Championship Football Team, and received an MBA from Harvard Business School.

Related Posts

  • Forming a General Partnership?
  • What is the best way for me to find some candidates for an IT business in Austin, TX?

Primary Sidebar

From the Editor’s Desk…

What We’re Reading

Leading With Gratitude, by Adrian Gostick and Chester Elton
Research shows that grateful bosses have happier more productive workiers and they fare better themselves. Here’s how to do gratitude right

Working From Home: Making the New Normal Work For You, by Karen Mangia
Look good on Zoom; When to accept meetings; How to pass on new workloads, and other helpful tips.

Blue Collar Cash: Love Your Work, Secure Your Future, by Ken Rusk
Guidance to those who want to skip the student loans and 4 years and pursue blue-collar careers that lead to success, from someone who did it.

Making Conversation, by Fred Dust
When work meetings become joyless time suckers, here’s advice for conversations designed to move things forward with clarity and context.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter
Suscribe to our newsletter

Run & Grow

Top Ways to Celebrate Customer Birthdays

Apr 16, 2021 By Anand Srinivasan

4 Essentials For Your New Office

Apr 15, 2021 By John England

how-to-make-your-background-checks-more-effective

Read This Before Buying a CheckPeople.com Background Check

Apr 15, 2021 By James Nathan

Offices Are Changing. Here Are the Newest Trends

Apr 13, 2021 By Devin Caldwell

Footer

About Us

Small Biz Club is the premier destination for small business owners and entrepreneurs. To succeed in business, you have to constantly learn about new things, evaluate what you’re doing, and look for ways to improve—that’s what we’re here to help you do.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Copyright © 2021 by Tarkenton Institute, Inc. All Rights Reserved | Terms | Privacy