When what you have been doing to help other people becomes bigger than a personal hobby, it may be time for you to start a charitable organization. This is a non-profit business structure that allows the organization to function as a legal entity that can have a separate bank account from your personal finances. However, one person cannot function as a charitable organization. It takes a board of at least 3 to 5 members whose responsibilities are fiscal accountability, governance and fundraising. There are also certain mandated obligations to the state, the IRS and to the donors.
Select a board of directors for your organization. These should be 3 to 5 people who share a passion for what your organization will do. Since the board of directors will also be responsible to govern the organization, provide fiscal oversight and engage in fundraising, these people should have influence in your community, affluence and expertize in an area that will benefit the organization. Keep minutes at your first meeting and at every meeting, because if your organization ever gets audited by the IRS, the book of minutes will be part of what the investigators consider.
Apply to be incorporated in one of the 50 states as a nonprofit organization. Applications for incorporation as a nonprofit organization are available online at the secretary of state website for each state. Each state has slightly different application requirements and fees. All of them, however, will ask for your organization's name, its mission statement, purpose and the names of the initial board members. Before submitting the application, it is prudent to do a search to make sure that there is no other nonprofit organization incorporated in your state which already has the name you would like. Failure to choose a unique name will delay the progress of your application. Most states have an online mechanism where you can check the name you want before submitting an application.
Prepare bylaws and a preliminary budget for your organization that predicts what you will need for the first 3 years. These will be needed for the application to become a tax-exempt organization. The book, "How to Form a Nonprofit Corporation," by Anthony Mancuso, gives step-by-step directions for how to write bylaws that meet the standard of the IRS (see Resources below). Your budget should consider three areas: administration, program and fundraising.
Apply for tax-exempt 501(c)(3) status from the IRS. It takes 6 to 12 months for this designation to be approved once your organization submits IRS Form 1023 (see Resources below). You must also attach the Articles of Incorporation from your state, the bylaws and a preliminary budget. A fee based on the size of your predicted budget will be charged. While it is not mandatory that a charitable organization have tax-exempt status, it is a way to motivate donors to fund what you do. In addition, most foundations that fund charitable organizations through grants require this IRS designation as a prerequisite for applying for a grant.
Build your organizational capacity carefully right from the start. Even if yours is a very small, hands-on organization, set policies and procedures about fund-raising, donor relations and program decision making so that you can grow sensibly. Set up a website and learn about how to acquire new donors whose giving priorities share your mission and values. Network with as many others who are involved in similar efforts so that you can all benefit from pooling your ideas. Above all, keep your board informed and interested in everything that involves the new organization.
- It costs an average of 20 cents to raise a dollar.
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