1: Do Your Research
Before you actually form your organization, you need to do a little research and answer a few questions, such as:
- Who would this nonprofit serve?
- Would your nonprofit address a real and present need in the area?
- Are there other organizations that are already doing similar work?
- If so, how would your nonprofit do a better job?
You also need to seriously consider if forming a nonprofit is the best way for you to pursue your passion or serve your community. The truth is that many nonprofits struggle financially and must be organized and run in a very specific manner. Success will hinge on hard work and careful planning. If there are alternative ways for you to reach your goals, you may want to consider them instead.
2: Develop Your Mission and Board
Your next step will be to develop your mission statement, business plan, and board.
Your mission statement should clearly communicate your nonprofit’s purpose. For example: United Way improves lives by mobilizing the caring power of communities around the world to advance the common good.
Following that, you’ll need to create a business plan that lays out in more specific detail how you hope to achieve your mission goals. You’ll also need to develop your board, which includes vetting, recruiting, and evaluating potential members who will assist in carrying out the duties of your nonprofit, as well as making decisions and fulfilling important legal responsibilities.
3: Incorporate Your Nonprofit
It is highly recommended that you form a nonprofit corporation before you register for 501(c)(3) status. Incorporation is a statutory process and will differ by state.
In Alabama, the steps for incorporating your nonprofit include:
- Choosing initial directors (must be 3 or more from your board).
- Choosing a name and filing a Name Reservation Form.
- Preparing and filing a nonprofit certificate of formation.
- Preparing your bylaws.
- Holding an organizational meeting with your board to approve bylaws, initial transactions, etc.
4: Obtain Your Federal and State Tax Exemptions
Once you have incorporated your nonprofit, you can move towards obtaining 501(c)(3) status.
You’ll start by filing an IRS Form 1023, also known as the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This a complex application that requires you to submit detailed information about your history, finances, organizational structure, and policies. It is recommended that you work with a tax attorney and/or CPA as you complete this application process.
Once you have completed the application, and it has been accepted, you will receive a notice of your tax exempt status.
Overall, forming a nonprofit is a very complex process. It is in your best interest to seek the assistance of a skilled attorney to help you navigate all the steps and make sure everything is in proper order. If you’re interested in forming a nonprofit, contact the lawyers at Stanko, Senter & Mitchell today.
