How to Start A Nonprofit?

May 13, 2014 | Civic Engagement, Dialogue, Social Enterprise

As the first certified Benefit Corporation specializing in diversity and inclusion consulting in the world, TMI feels that it is very important for employees to find and/or build a workplace that they believe in wholeheartedly.  In many ways being a B-Corporation means that it is our job to help guide suppliers, investors and customers — including nonprofits — who want to make a positive impact on society. While TMI’s expertise is not focused on non-profit management, it is not uncommon for us to get asked a lot of questions on the subject.  One common question being—“So I want to start a nonprofit, but I don’t know where to start.  Can you help me?” In the spirit of helping create organizations that make positive change, and instead of writing a long email, here is my answer:

When creating a nonprofit, like any organization, the nonprofit is governed by all the rules that may apply to whatever business activities it undertakes (in our case the rules and laws of the US, and Virginia). Generally speaking, a US nonprofit is governed by the following four sets of rules:

  1. Its own Charter Documents—Mission, Vision, Values and Bylaws
  2. The laws of the state where it is incorporated
  3. IRS regulations/the limits on tax-exempt groups under federal law
  4. Fundraising rules and regulations–all states are different. Basically to solicit a donation from one state could be different than soliciting a donation from another state. The difference are small and not really important at this stage, but its something to keep in mind

This probably sounds like a lot of red tape, and in some ways it is, but it is by no means rocket science.  It’s mostly just very tedious.  My recommendations on where to start are as follows:

1)  Research and Network

For starters, research if an organization or NGO already exists that serves or is closely related to your cause. If your particular work is fairly niche, and does not have an existing organization that does what you are hoping to do, it is important to still reach out to a lot of government and/or religious types of organizations to see if they would be interested in either a fiscal partnership, or in allowing you to create a program under the umbrella of their network. Working with other nonprofits has two benefits:

  1. It avoids diluting the effect of fundraising dollars and volunteer hours available, and immediately creates a fundraising network for your program.
  2. By having an official fiscal sponsor you would still receive tax-deductible donations and often times that organization would handle your administrative paperwork.  In other words, it’s a type of nonprofit alliance. Once you have researched and know whether or not fiscal sponsorship is even an option, your next step is to network (And quite honestly you can be doing the research and networking simultaneously).  Begin to reach out to other nonprofits and organizations to discuss best practices and advice.

2. Hire/Find/Become Friends with a Lawyer

Bad News: once you have done a little research and networking, you really need a lawyer.  Good News: lawyers aren’t that scary.  In fact, lots of lawyers offer pro-bono assistance to non-profits. I know that here in Richmond, Virginia the Greater Richmond Bar Association offers free legal services to nonprofits, including nonprofits that are just getting started. It’s called the Pro Bono Clearinghouse. While all requests are not necessarily received, it is a wonderful program that I highly recommend.

Additionally, there are multiple reasons why you will need the services of a lawyer in setting up your non-profit.  For starters, a lawyer can assist you with determining the appropriate legal structure for your nonprofit.  For example, there are IRS rules regarding nonprofit status whereby a whole family cannot technically be on the board of, and work for (receive money from) the same nonprofit. These are rules that a lawyer can educate you on.

A second reason you want a lawyer is that s/he can assist in setting up the nonprofit.  Once you figure out the legal structure, you will need to complete many additional steps.  All of which a lawyer can assist with, and some of which you can do on your own:

  • Determine the name of your nonprofit and begin checking name availability.  If you live in Virginia, you can check name availability by visiting the Virginia Corporation Commission and running searches: http://www.scc.virginia.gov/clk/bussrch.aspx.
  • Establish Incorporators, a board, and directors.  The good news with this is that Virginia only requires one incorporator, but again the lawyer will be able to assist you in setting up as it various by state.
  • Appoint a registered agent.  Basically this individual or company receives notice of lawsuit and other legal service for the corporation.  It’s a formality, and the lawyer can submit the proper paperwork.
  • All of the legal forms and paperwork that will officially establish you as a nonprofit.  Incorporation in your state will likely take just a matter of a week or so. That said, getting 501 (c) 3 recognition from the IRS can take between 3-8 months and comes with a few fees.
  • Bylaws:  Like many states, Virginia requires that your non-profit have Bylaws in order to receive/maintain nonprofit status.  The Bylaws will need updating from time to time and it is best to always have a lawyer assist with this process.

3)  Develop A Mission Statement

The last step that I recommend taking is to fully think through and create your mission statement, name your programs, and set financial goals.  Eventually your finances and day-to-day administrative work will be handled by a Nonprofits Executive Director, but until then I strongly suggest finding someone with a strong financial background to join your board A.S.A.P.