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Starting a Nonprofit Organization

Below is a list of the questions that we are most commonly asked by individuals who are starting a nonprofit organization. The answers should help you to get a handle on all of the various steps that need to be taken.

What is a Nonprofit Organization?

The difference between nonprofit and for-profit organizations is that nonprofits use their profits to advance their programs, while for-profits distribute their profits to their owners or stockholders. Nonprofit organizations fall into five main categories:

  • 1) Trade associations, organized to advance a group of people who have a profession in common (for example, Association of Research Librarians, International Association of Meeting Planners). This group also includes chambers of commerce and unions.

  • 2) Charitable organizations, which must generally demonstrate a benevolent component. This is a diverse category, including religious groups, museums, environmental and educational organizations, libraries, and the many helping groups referred to as "charities." They are also referred to as 501 (c)(3) organizations, because that is the number of the IRS Code under which they are described.

  • 3) Social clubs, such as country clubs and fraternal organizations.

  • 4) Governmental groups, including city, county, state, and federal agencies.

  • 5) Political groups, generally organized to promote certain policies, issues, or candidates for political office.

Click here to view an IRS chart detailing characteristics of types of nonprofits. Again, you will note that each type is designated by the IRS Code under which it appears.

 

Should I Start a Nonprofit Organization?

The key question to ask yourself is, "Who will benefit from the activity?"  If the answer is that you or your family will benefit, then it's a good idea to start a for-profit company rather than a nonprofit organization. If your answer is that the community or the public at large will benefit, then a nonprofit structure may be the best route.

The second question to ask yourself is, "Will I allow the board of directors to set policy, including my salary, benefits, and even my employment by the organization?" If your answer is "No, I want to keep control of the organization," then you want to make your corporation for-profit. If, however, you want the board to be autonomous, then a nonprofit organization can be a good fit.

Remember, you can sit on the board and you can have a vote when it comes to determining policy. However, on issues that affect your employment, salary, and benefits, you must excuse yourself from voting.


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