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How to Start a Nonprofit
Neel HajraChief Operating Officer, NEW
October 10, 2007
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Goal
• General familiarity with nine basic steps for starting a nonprofit corporation
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1.1. What is a Nonprofit?What is a Nonprofit?2. Why?3. Preparations4. Articles of Incorporation5. Board of Directors6. Bylaws7. Tax-Exempt Status8. Registrations9. Ongoing Operations
STEP ONESTEP ONE
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What is a nonprofit?
• “Nonprofit” is a type of corporation
• Key distinctions No dividends Public good Governed by board
• Keystone of civil society
Board
ExecutiveDirector
Staff/Volunteers
Public
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“Nonprofit” combines 2 meanings
• State nonprofit corporation
• Federal tax exempt status: “501(c)(3)”
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1. What is a Nonprofit?
2.2. Why?Why?3. Preparations4. Articles of Incorporation5. Board of Directors6. Bylaws7. Tax-Exempt Status8. Registrations9. Ongoing Operations
STEP TWOSTEP TWO
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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
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Disadvantages
• Proliferation
• Potential redundancy
• Loss of control
• Administrative burden
• Political activity restricted
• Dedicated assets
• Asking for $$$
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General considerations
• Need?
• Core support?
• Funding?
• Duplicative?
• Is forming a nonprofit the best approach?
• For more info: Drucker Self-Assessment (www.drucker.org)
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1. What is a Nonprofit?2. Why?
3.3. PreparationsPreparations4. Articles of Incorporation5. Board of Directors6. Bylaws7. Tax-Exempt Status8. Registrations9. Ongoing Operations
STEP THREESTEP THREE
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Important preparations
• Vision and clear mission
• Planning Strategic Business (including budget)
• Start convening board & supporters
• Strong Executive Director
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1. What is a Nonprofit?2. Why?3. Preparations
4.4. Articles of IncorporationArticles of Incorporation5. Board of Directors6. Bylaws7. Tax-Exempt Status8. Registrations9. Ongoing Operations
STEP FOURSTEP FOUR
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Articles of Incorporation
• Basic characteristics
• Filed Articles = corporation created
• Standard Articles for Michigan
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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
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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
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1. What is a Nonprofit?2. Why?3. Preparations4. Articles of Incorporation
5.5. Board of DirectorsBoard of Directors6. Bylaws7. Tax-Exempt Status8. Registrations9. Ongoing Operations
STEP FIVESTEP FIVE
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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
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Board responsibilities
• Oversees everything!
• Local resource: www.boardconnect.org
• More info: www.boardsource.org
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Board tips
• Passion / Interest / Commitment
• Expertise
• Connections / Resources
• Diversity
• Customers
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1. What is a Nonprofit?2. Why?3. Preparations4. Articles of Incorporation5. Board of Directors
6.6. BylawsBylaws7. Tax-Exempt Status8. Registrations9. Ongoing Operations
STEP SIXSTEP SIX
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Bylaws
• Internal regulation and management
• Adopted at first meeting by the new board
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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.
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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
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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
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1. What is a Nonprofit?2. Why?3. Preparations4. Articles of Incorporation5. Board of Directors6. Bylaws
7.7. Tax-Exempt StatusTax-Exempt Status8. Registrations9. Ongoing Operations
STEP SEVENSTEP SEVEN
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Federal tax exemption forms
• Form SS-4 Employer Identification Number (EIN)
• Form 1023 Primary form 501(c)(3)
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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
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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
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IRS Form 1023 Exceptions
• Not required for: Churches and related associations/schools Branch of national exempt organization Organizations with gross receipts < $5,000
annual
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Form 1023 Main Themes
• Activities and Operational Information
• Personnel and business relationships
• Technical Matters
• Financial Information
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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
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1. What is a Nonprofit?2. Why?3. Preparations4. Articles of Incorporation5. Board of Directors6. Bylaws7. Tax-Exempt Status
8.8. RegistrationsRegistrations9. Ongoing Operations
STEP EIGHTSTEP EIGHT
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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 www.mnaonline.org
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1. What is a Nonprofit?2. Why?3. Preparations4. Articles of Incorporation5. Board of Directors6. Bylaws7. Tax-Exempt Status8. Registrations
9.9. Ongoing OperationsOngoing Operations
STEP NINESTEP NINE
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Ongoing Considerations
• Annual filings
• Insurance
• Financials & Audits
• Employment Administration
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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
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Resources
• www.new.org/resourceconnect/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
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How Can NEW Help You?
• ResourceConnect®
• BoardConnect®
• npServTM
• The NEW Center
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Good Luck!