How to Start a Nonprofit Neel Hajra Chief Operating Officer, NEW October 10, 2007

Goal General familiarity with nine basic steps for starting a nonprofit corporation

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP ONE

What is a nonprofit? “Nonprofit” is a type of corporation Key distinctions  No dividends  Public good  Governed by board Keystone of civil society Board Executive Director Staff/Volunteers Public

“Nonprofit” combines 2 meanings State nonprofit corporation Federal tax exempt status: “501(c)(3)”

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP TWO

Advantages Nonprofit corporation  Limited liability  Perpetual existence  Employee benefits  Formality and structure 501(c)(3) tax exemption  State and federal income tax exemption  Tax deductible donations  Eligibility for public funds  Lower rates on postal and other services  Estate tax benefits

Disadvantages Proliferation Potential redundancy Loss of control Administrative burden Political activity restricted Dedicated assets Asking for $$$

General considerations Need? Core support? Funding? Duplicative? Is forming a nonprofit the best approach? For more info: Drucker Self-Assessment (

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP THREE

Important preparations Vision and clear mission Planning  Strategic  Business (including budget) Start convening board & supporters Strong Executive Director

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP FOUR

Articles of Incorporation Basic characteristics Filed Articles = corporation created Standard Articles for Michigan

Articles of Incorporation 1.Name  Not misleading  Not existing 2.Mission  Somewhat broad scope  Benefits public good  Concise language 3.Basis, Assets, Budget, Governance  Non-stock  Simple assets & budget  Directorship vs. Membership

Articles of Incorporation 4.Location of Office 5.Incorporators  One or more  Fiduciary  Names initial board 6.(extra) Include IRS restrictions 7.(extra) Protect board & volunteers

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP FIVE

Board of Directors Initial Board is named at first meeting of incorporators, elected thereafter Interests of corporation AND society Duty of care, loyalty, and obedience

Board responsibilities Oversees everything! Local resource: More info:

Board tips Passion / Interest / Commitment Expertise Connections / Resources Diversity Customers

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP SIX

Bylaws Internal regulation and management Adopted at first meeting by the new board

Bylaw provisions Purpose: “As stated in the Articles of Incorporation.” Number of Directors: Must have one. Recommend at least five. Term for Directors: Must be at least one year. Recommend at least two years and staggered terms. Board Meetings: Must be at least annual, recommend monthly during first year.

Bylaw provisions continued Officers: Must have President, Secretary, and Treasurer. Recommend Vice-President as well. Quorum  Must have at least a majority when Board is < 7  Must have at least 1/3 when Board is seven+  Recommend majority

Side Note: First Meeting Name board & elect officers Adopt documents Approve activities Good Template: Use the “Minutes of First Meeting” appendix from How to Form a Nonprofit Corporation, by Anthony Mancuso

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP SEVEN

Federal tax exemption forms Form SS-4  Employer Identification Number (EIN) Form 1023  Primary form  501(c)(3)

501(c)(3) main requirements Formed exclusively for benefit of the public good:  Charitable  Educational  Religious  Literary  Scientific  Testing for public safety  Prevention of cruelty to children or animals  Fostering national or international amateur sports competition

501(c)(3) requirements cont. Must be operated for exempt purpose  “UBIT” No private inurement  Cannot distribute gains  Assets irrevocably dedicated Cannot substantially engage in the influence of legislation No partisan politics

IRS Form 1023 Exceptions Not required for:  Churches and related associations/schools  Branch of national exempt organization  Organizations with gross receipts < $5,000 annual

Form 1023 Main Themes Activities and Operational Information Personnel and business relationships Technical Matters Financial Information

Other 501(c)(3) information Most applications are accepted Turnaround time is several months, and going up! Good Form 1023 walkthroughs:  How to Form a Nonprofit Corporation, by Anthony Mancuso  Prepare Your Own 501(c)(3) Application, by Sandy Deja

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP EIGHT

Common registrations Charitable Trust (Dept. of Attorney General) Charitable solicitation registration (Dept. of Attorney General)  Required if asking for more than $8,000 annually Lobbying registration (Dept. of State)  Required if direct spending exceeds $1675 total or $425 for individual State and local withholding (Dept. of Treasury)  Form 518 is required if organization has employees Sales Tax (Dept. of Treasury) Property Tax (local assessor) Nonprofit postage rates (U.S. Post Office) See

1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations STEP NINE

Ongoing Considerations Annual filings Insurance Financials & Audits Employment Administration

RECAP 1.What is a Nonprofit? 2.Why? 3.Preparations 4.Articles of Incorporation 5.Board of Directors 6.Bylaws 7.Tax-Exempt Status 8.Registrations 9.Ongoing Operations

Resources Getting started & templates:  How to Form a Nonprofit Corporation, by Anthony Mancuso  Longer Workshop: Forming a 501(c)(3) Three part series by MNA at NEW Center (October 30, Nov 6, Nov 13) Ongoing Operations  Michigan Nonprofit Management Manual, by Michigan Nonprofit Association

How Can NEW Help You? ResourceConnect® BoardConnect® npServ TM The NEW Center

Good Luck!