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.


What legal structure is best for my organization?

Choosing a legal structure is one of the core decisions change-agents must make for their organization. With a number of traditional and emerging structure options, it's important to fully understand the benefits and trade-offs of each option. The Society's webinar archive includes a two-part series on legal structure that is ideally suited for anybody thinking of starting a nonprofit organization. All of our live and recorded webinars are free to members of the Society.


How can I find funding for my nonprofit?

Without sufficient funding, even the most worthy of organizations with the most devoted of personnel cannot succeed. For organizations that are just getting started, the challenge of establishing a reliable source of funding is even greater. In our free Fundraising Guide, we help you to determine if you're ready for fundraising, provide you with eight key steps to fundraising, and discuss some of the pros and cons of different fundraising methods.

With thousands of trusts and foundations offering billions of dollars in grants each year, it can be extremely time consuming to find those that are still current and that are a good match for your mission. Resources like GrantStation and Funding Alert that provide you with up to date and easily searchable funding opportunities can help you to quickly pinpoint funding opportunities that are most likely to be successful.


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.


Do I Need a Lawyer? How Do I Choose One?

You can do most of the work of starting your organization on your own, but you should have your paperwork checked by an attorney. It's important to get an expert's help in setting things up as the law requires.  To choose a lawyer, find someone with a good local reputation and experience in the nonprofit sector. Get referrals from nonprofit leaders you respect. You can also check with the American Bar Association (800-285-2221), your state or local bar associations, the Christian Legal Society (703-642-1070), lawyer referral services, or the Foundation Center.


How Can I Get a Head Start?

To be successful with your new organization, it's critical to have a strong understanding of the fundamentals of nonprofit leadership and management. For individuals who are just getting started, concepts like UBIT, operating reserves, outcome measurement, and donor retention are often misunderstood or entirely overlooked.

Register today for a free membership in the Society for Nonprofits.

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