1. Establishing a Nonprofit

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http://foundationcenter.org/

Establishing a NonprofitOrganization


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Establishing a NonprofitOrganization

File the certificate of incorporation Select individuals to serve on the board of directors Develop vision and mission statements Establish bylaws and board policies Obtain an employer identification number (EIN) Open a bank account and establish check signing procedures File for federal tax exemption Follow state and local nonprofit regulations Find office space and obtain office equipment Recruit staff and prepare a personnel manual

Establish a payroll system and procure necessary insurance covera

Develop an overall fundraising plan
http://foundationcenter.org/getstarted/tutorials/establish/inc.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/board_dev.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/statements.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/bylaws.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/ein.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/finances.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/tax.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/regs.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/equip.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/staff.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/payroll.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/fund.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/fund.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/payroll.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/staff.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/equip.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/regs.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/tax.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/finances.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/ein.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/bylaws.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/statements.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/board_dev.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/inc.html


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File the certificate of incorporation

The first step in becoming a corporation is drafting thelegal incorporation document--the "certificate" or "articles" of incorporation--and filing the document withthe appropriate office within your state government,

usually the office of the Secretary of State or AttorneyGeneral. In some states, approval must first be obtainedfrom any state agency that will be regulating theproposed programs of the nonprofit organization. Stateincorporation usually can be accomplished within a

matter of weeks, although multiple or complex stateagency reviews can considerably extend that period.
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File the certificate of incorporation Prior to the incorporation process, you also will need to make a

decision whether or not your nonprofit will be a membershiporganization. Members may have significant rights with respect tointernal governance, such as the right to elect and remove directors,vote upon changes in the structure of the organization and amendbylaws. Becoming a membership organization can be beneficial. For example, prominent individuals from existing community groupsaffiliated with your organization may feel a strong sense of ownership in the effectiveness of the board of directors, and in theoverall success of the nonprofit's mission if they are members.However, forming your corporation as a membership corporationalso imposes legal obligations in preserving the rights of membersto participate in the corporation's governance.
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File the certificate of incorporation

Resources on the Web: Find examples of articles of incorporation

Locate the State Charity Registration Offic

NASCONet: The National Association of State Charity
http://foundationcenter.org/getstarted/tutorials/establish/inc.htmlhttp://foundationcenter.org/getstarted/faqs/html/samplearticles.htmlhttp://www.nonprofits.org/npofaq/0/1496.htmlhttp://www.nasconet.org/http://www.nasconet.org/http://www.nasconet.org/http://www.nasconet.org/http://www.nonprofits.org/npofaq/0/1496.htmlhttp://foundationcenter.org/getstarted/faqs/html/samplearticles.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/inc.html


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Select individuals to serve on the b

The board of directors is the governing body of anonprofit organization. The responsibilities of theboard include discussing and voting on thehighest priority issues, setting organizationalpolicies, and hiring and evaluating key staff.Board members are not required to knoweverything about nonprofit management, butthey are expected to act prudently and in thebest interests of the organization. They approveoperating budgets, establish long-term plans,and carry out fundraising activities.
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Important points during this process: It is essential that prospective board members be told

what is expected of them before they are proposed for election. Asking people to join the board withoutproviding a "job description" is sure to create anineffective board.

Build a board slowly. Proceeding carefully can providethe necessary time for learning why an individual

wants to become a board member, and decidingwhether his or her agenda is compatible with theorganization's.


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Seek out the advice of local funders, such as foundationstaff, United Way officials, and government officials whohave an interest in your organization's mission

Contact executive directors and board officers of large,

established nonprofit institutions in your community for their suggestions Speak to religious leaders in your locale to see if they can

recommend any candidates, particularly from their owncongregations

Ask for volunteers at any canvassing efforts, open houses,special events, and benefits that your organizationsponsors


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Resources on the Web: BoardSource

: Building Effective Nonprofit Boards Free Complete Toolkit for Boards

(Posted by the Management AssistanceProgram for Nonprofits)
http://foundationcenter.org/getstarted/tutorials/establish/board_dev.htmlhttp://www.boardsource.org/http://www.boardsource.org/http://www.managementhelp.org/boards/boards.htmhttp://www.managementhelp.org/boards/boards.htmhttp://www.boardsource.org/http://www.boardsource.org/http://foundationcenter.org/getstarted/tutorials/establish/board_dev.html


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Develop vision and mission statem

Vision and mission statements should articulate theessence of your organization's beliefs and values anddefine its place in the world. They establish the long-termdirection that guides every aspect of an organization's

daily operations. To distinguish between the two, a vision statementexpresses an organization's optimal goal and reason for existence, while a mission statement provides anoverview of the group's plans to realize that vision byidentifying the service areas, target audience, and valuesand goals of the organization.
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Develop vision and mission statem

PARK UNIVERSITY MISSIONSTATEMENT

The mission of Park University, anentrepreneurial institution of learning, is toprovide access to academic excellence,which will prepare learners to thinkcritically, communicate effectively andengage in lifelong learning while serving aglobal community.
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http://foundationcenter.org/getstarted/tutorials/establish/bylaws.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/bylaws.html


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Establish bylaws and board policie

Bylaws define how a nonprofit organization willbe managed and how it will run. They determinewhich staff and board members have authority

and decision-making responsibilities and howthose responsibilities should be carried out.They create a framework for the organization,and aid in resolving internal disputes. They also

describe the rules for calling board meetings,and how and when board members are elected.


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In addition to bylaws, it is advisable to havesomething at a lower level of formality, such asboard policies. You might, for instance, adopt aConflict of Interest Policy and set up a procedure

for board members and officers to disclosewhether they, or people close to them, may be in aposition to benefit from something the nonprofit isdoing. Having such a policy in place will assurefunders that the chief officers of the nonprofit

organization understand the importance of handling charitable dollars prudently andresponsibly.


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Resources on the Web: Template of sample bylaws (Posted by the

Bylaws of the Volunteer Clinic Resource C

Bylaws of the RECA Foundation, located in

http://www.boardsource.org/
http://foundationcenter.org/getstarted/tutorials/establish/bylaws.htmlhttp://www.mncn.org/bylaws.htmhttp://healthinfo.montana.edu/volclin/bylaws.htmlhttp://recafoundation.org/bylaws.htmhttp://recafoundation.org/bylaws.htmhttp://healthinfo.montana.edu/volclin/bylaws.htmlhttp://www.mncn.org/bylaws.htmhttp://foundationcenter.org/getstarted/tutorials/establish/bylaws.html


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Obtain an employer identification n

To open one or more bank accounts in the name of theorganization (and to file Form 990 with the IRS after each fiscal year), you will need to obtain an employer identification number (EIN), also called a federal taxidentification number. An EIN may be obtained by filingForm SS-4 with the Internal Revenue Service. Lookingahead, this step is necessary for withholding employeeincome tax once you begin to hire staff.

Obtaining an EIN usually takes no longer than 30 days,and there is no filing fee.

Form SS-4, Application for Employer Identification Number Publication 1635, Understanding Your EIN
http://foundationcenter.org/getstarted/tutorials/establish/ein.htmlhttp://www.irs.gov/pub/irs-pdf/fss4.pdfhttp://www.irs.gov/pub/irs-pdf/fss4.pdfhttp://www.irs.gov/pub/irs-pdf/p1635.pdfhttp://www.irs.gov/pub/irs-pdf/p1635.pdfhttp://www.irs.gov/pub/irs-pdf/p1635.pdfhttp://www.irs.gov/pub/irs-pdf/p1635.pdfhttp://www.irs.gov/pub/irs-pdf/fss4.pdfhttp://www.irs.gov/pub/irs-pdf/fss4.pdfhttp://foundationcenter.org/getstarted/tutorials/establish/ein.html


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Open a bank account and establish check si

It is important to establish a prudent system of checks and balanceswhen dealing with the finances of an organization. It is advisable toallocate finance work among several people so that no one personis in charge of handling all of the transactions related to money. For example, when dealing with the receipt of cash, there should be onestaff member who receives and tallies the funds, but a different staff member who then is responsible for taking the money to the bankand making the deposit. You should arrange for bank statements tobe sent directly to the executive director, in order to ensure thateach transaction can be accounted for. In turn, the bank statementsthen can be forwarded to the staff member responsible for reconciling the account(s).

By proceeding in such a prudent fashion, the potential for misappropriation of funds is minimized. Such sound fiscalprocedures will please auditors, as well as future donors.
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Open a bank account and establish check si

Resources on the Web: Basic Guide to Non-Profit Financial Manag

Nonprofit Financial Center
http://foundationcenter.org/getstarted/tutorials/establish/finances.htmlhttp://www.managementhelp.org/finance/np_fnce/np_fnce.htmhttp://www.nfconline.org/http://www.nfconline.org/http://www.managementhelp.org/finance/np_fnce/np_fnce.htmhttp://foundationcenter.org/getstarted/tutorials/establish/finances.html


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File for federal tax exemption

You will need to file with the InternalRevenue Service for tax-exempt statusunder Section 501(c)(3). Form 1023 is themulti-page form you will need to file.Within three to six months of submittingyour paperwork, you ordinarily will receive

a letter, granting tax-exempt status to your organization.
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File for federal tax exemption Organizations that achieve 501(c)(3) status are exempt

from federal taxes, and contributions given to them aredeductible by donors for income tax purposes. In addition,the overwhelming majority of private foundations in theU.S. award grants only to organizations that have thisparticular tax-exempt status. See:

Package 1023, Application for Recognition for Exemption Under Section

Publication 557,

Tax Exempt Status for Your Organization
http://foundationcenter.org/getstarted/tutorials/establish/tax.htmlhttp://www.irs.gov/publications/p557/ch03.htmlhttp://www.irs.gov/publications/p557/ch03.htmlhttp://www.irs.gov/pub/irs-pdf/p557.pdfhttp://www.irs.gov/pub/irs-pdf/p557.pdfhttp://www.irs.gov/pub/irs-pdf/p557.pdfhttp://www.irs.gov/pub/irs-pdf/p557.pdfhttp://www.irs.gov/publications/p557/ch03.htmlhttp://www.irs.gov/publications/p557/ch03.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/tax.html


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File for federal tax exemption Although you can complete Form 1023 without outside

assistance, it is not advisable to do so. Success in securingboth state incorporation and federal tax-exempt status usuallyrequires the assistance of an attorney, and competent legalcounsel often helps the process move along smoothly. If youhave limited financial resources, you might contact a publicinterest legal organization that connects nonprofitorganizations with volunteer business lawyers. There is agrowing network of those providers in cities all over the UnitedStates, coordinated by an organization in New York calledPower of Attorney. You might also seek help from localtechnical assistance or management support organizationsthat specialize in providing guidance to nonprofitorganizations. Resources on the Web:

Power of Attorney CorporateProBono.Org
http://foundationcenter.org/getstarted/tutorials/establish/tax.htmlhttp://www.powerofattorney.org/http://www.corporateprobono.org/http://www.corporateprobono.org/http://www.powerofattorney.org/http://foundationcenter.org/getstarted/tutorials/establish/tax.html


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Follow state and local nonprofit reg

Once you receive tax-exempt status from the federal government, itis likely that you will need to file separately for state and local taxexemptions. Most states and many localities require nonprofits toregister with the Charities Registration Bureau of the state or localitywhere they'll be fundraising. If your organization plans to fundraiseactively in several states, you may need to register in each state inwhich you will be soliciting from the public.

Nonprofit organizations that are exempt under Section 501(c)(3)may qualify for exemption from state sales tax as well as fromproperty taxes (if property is owned). Check with your StateDepartment of Finance or Taxation to secure the necessary forms.For property tax exemption, apply to your local (county, town, or

city) tax assessor's office. Your organization also may qualify for anonprofit bulk-mailing permit, which would dramatically reduce your cost for third-class bulk mailings. You can obtain a permit byapplying to the main office of your local post office.
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Follow state and local nonprofit reg

Resources on the Web: State Charitable Solicitations Requirement
http://foundationcenter.org/getstarted/tutorials/establish/regs.htmlhttp://www.iknow.org/listing.cfm?Main=4&Sub=47http://www.iknow.org/listing.cfm?Main=4&Sub=47http://foundationcenter.org/getstarted/tutorials/establish/regs.html


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Find office space and obtain office

Finding office space can be a challenge, and there aremany complex challenges involved with negotiating alease. These often include the cost of utilities,renovations and charges for building maintenance. The

process often runs quite smoothly, however, if you havea board member with experience negotiating leases. As you obtain office equipment, you will need to consider

whether you should rent or buy. If you buy, there will besignificant up-front costs or financing costs. Regardlessof whether you rent or buy, you will need to evaluate thequality of the equipment, as well as the service contractand associated cost.
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Recruit staff and prepare a personn

As you build up your staff, you will need toprepare a personnel manual, whichoutlines policies related to overtime,

annual and sick leave, health insuranceand retirement benefits. While thisdocument is not critical in the initial stagesof setting up a nonprofit organization, itcan prove to be quite handy when your staff begins to grow past the one-or-two-person stage.
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Recruit staff and prepare a personn

Resources on the Web: Human Resources Management (posted by the

Management Assistance Program for Nonprofits)

Personnel Policies, Handbooks and Records (posted by the Management Assistance Programfor Nonprofits)

U.S. Employee Laws (posted by the ManagementAssistance Program for Nonprofits)

E t bli h ll t d
http://foundationcenter.org/getstarted/tutorials/establish/staff.htmlhttp://www.managementhelp.org/hr_mgmnt/hr_mgmnt.htmhttp://www.managementhelp.org/policies/policies.htmhttp://www.managementhelp.org/legal/emp_law/emp_law.htmhttp://www.managementhelp.org/legal/emp_law/emp_law.htmhttp://www.managementhelp.org/policies/policies.htmhttp://www.managementhelp.org/hr_mgmnt/hr_mgmnt.htmhttp://foundationcenter.org/getstarted/tutorials/establish/staff.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/payroll.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/payroll.html


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Establish a payroll system and pro

You will need to make payroll arrangements tocompensate your full time and part time staff, aswell as independent contractors. It is importantto distinguish the role of independent contractorsfrom that of part time staff. Independentcontractors are hired to perform veryspecialized, short-term projects for theorganization (i.e. accountants, lawyers,consultants), whereas part time staff arepermanent or long-term employees of theorganization.
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There are many different ways to maintaina viable, financially stable nonprofitorganization. It is important to developfunding from a mix of individual andinstitutional sources, as well as earnedincome generated from special events,

products, services and membership fees.
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Resources on the Web: Find out about foundation grants for your

Find Web sites for researching prospectiv

Find information on government grants

checklist for establishing a
http://foundationcenter.org/getstarted/tutorials/establish/fund.htmlhttp://foundationcenter.org/getstarted/faqs/html/subject.htmlhttp://foundationcenter.org/getstarted/faqs/section_2e.htmlhttp://foundationcenter.org/getstarted/faqs/html/government_grants.htmlhttp://foundationcenter.org/getstarted/faqs/html/government_grants.htmlhttp://foundationcenter.org/getstarted/faqs/section_2e.htmlhttp://foundationcenter.org/getstarted/faqs/html/subject.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/fund.html


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checklist for establishing anonprofit organization:

File the certificate of incorporation Select individuals to serve on the board of directors Develop vision and mission statements Establish bylaws and board policies Obtain an employer identification number (EIN)

Open a bank account and establish check signing procedures File for federal tax exemption Follow state and local nonprofit regulations Find office space and obtain office equipment Recruit staff and prepare a personnel manual

Establish a payroll system and procure necessary insurance covera Develop an overall fundraising plan
http://foundationcenter.org/getstarted/tutorials/establish/inc.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/board_dev.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/statements.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/bylaws.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/ein.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/finances.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/tax.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/regs.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/equip.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/staff.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/payroll.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/fund.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/fund.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/payroll.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/staff.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/equip.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/regs.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/tax.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/finances.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/ein.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/bylaws.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/statements.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/board_dev.htmlhttp://foundationcenter.org/getstarted/tutorials/establish/inc.html


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Checklist:

As you begin the process of establishingyour nonprofit organization, it is importantto remember that before you begin the

process of fundraising, your organizationmust be able to demonstrate the keycharacteristics of a successful nonprofitorganization: a vital mission, clear lines of accountability, high-quality programs andservices, and reliable and diverse revenuestreams.

Documents

1. Establishing a Nonprofit