Are you considering nonprofit status for your business, or do you want to start a nonprofit? The road to registering a nonprofit can be long and tedious. You may also wonder if there is a grant available to start a nonprofit? While there are a few available, it really depends on your location and industry sector.
Depending on the state you reside in, it will roughly cost a minimum of $1,000 – $3,000, to set up for nonprofit. Furthermore, this registration process can take an average of eight months from start to finish. Additionally, there are a few steps to registering a nonprofit, from appointing board members, obtaining an EIN number, filing articles of incorporation, applying for tax-exempt status, and setting up a DUNS number.
How to Start a Nonprofit:
1. Choose your niche
It’s important to know what services are already available in your community. You do not want to duplicate a pre-existing organization. A quick google search can solve this or visit nonprofit directories.
2. Register the name of your nonprofit
The cost will vary to register depending on your State. Do a search with your Secretary of State’s office to see if the name you chose is available.
3. Appoint your board of directors
You will need to list their personal information when you file for incorporation and tax exemption. Note: Board members cannot be paid for their services. They should have the experience and expertise to meet your operational needs.
4. Creating your bylaws
The bylaws are a legal agreement between the organization and its board members. In other words, bylaws state how the business will be conducted and how decisions will be made.
5. Filing your articles of incorporation
Your organization needs to be formed either as a corporation or a state-registered unincorporated association. Your articles of incorporation are filed with your state office and can vary in price.
6. Get a federal employer identification number (EIN)
Your organization must have its own EIN to apply for tax-exempt status. There is no charge to have an EIN issued.
7. Applying for your Tax-Exempt Status
Usually, you fill out Form 1023 (or the simplified version of Form 1023-EZ) to apply for tax-exempt status. At over 28 pages long, it takes at least a few days to fill out, and the average fee is $600.00.
8. Apply for state and local tax exemptions
You can apply to be recognized by state and local authorities once the IRS has approved your organization’s tax-exempt status.
Do you think that registering a nonprofit is right for you? If you are still sitting on the fence, we recommend weighing up the pros and cons. Here are things to consider when starting a nonprofit:
The Advantages of Starting a Nonprofit:
- Most of the income of a nonprofit is tax-exempt.
In the majority of cases, the contributions from donors are also tax-exempt.
- Limitations on the personal liability of their members and employees.
The only issue that pierces this shield is if the members act unethically or illegally.
- The legal status remains intact even if the founders of the nonprofit are no longer a part of the organization.
In addition, this allows nonprofits to continue their mission long after the founders are gone.
- Nonprofits often receive better rates from government entities such as USPS.
Also, many large corporations like Google, Facebook, and Amazon make special allowances for NPOs.
- Above all, nonprofit organizations can receive grants.
Grants are from foundations as well as federal, state, and local government funding sources.
The Disadvantages of Starting a Nonprofit
- Most nonprofits are dependent on grant funding and donations to survive.
With over 2 million nonprofits in the US, obtaining a grant is extremely competitive and the application process can be complex. Nonprofit members are constantly soliciting donations and this can detract from their main mission.
- Nonprofit organizations are subject to stricter reporting requirements and they are closely scrutinized.
Nonprofits are required to report how they use their funds. Assets accumulated by the company, or put into the company by the founder, are not permitted to leave when they leave.
- The cost to apply for federal tax-exempt status can be prohibitive.
The application fees are determined by the budgeted annual gross income. This can add up to $1,000.00.
- Most find the application process to be complex and tedious.
Therefore, to ensure accuracy, it’s sometimes necessary to hire nonprofit attorneys to help complete the application. Legal fees can be costly.
- Nonprofits run the risk of losing their tax status if they miss the deadlines for filing their annual reports.
Organizations that miss the annual reporting deadline may have their tax-exempt status. Even the statements themselves must meet specific requirements to qualify as an authorized filing.
How to Secure Funding
As mentioned earlier, nonprofits are dependent on grant funding and donations to survive. Hence, a popular way to raise immediate funds, is through crowdfunding. For instance, utilize a crowdfunding platform that best serves the needs of your nonprofit. This may take some research and time but will help to gain you the best outcome to target new donors.
Other ways to raise money for your nonprofit include:
> Selling products or merchandise
> Hosting fundraisers, raffles, and events
> Appeal to your community for donations
Grant Seeking As a New Nonprofit
Once you have proof of your tax-exempt status, you can start searching for grants. Since you are new and won’t have a grant award history under your belt, you will have to start small. This may mean applying for in-kind grants and micro-grants (under $5,000). Once you’ve won some of these smaller amounts and can prove to grant funders that you are fiscally responsible with funding, you can apply for grants of a larger size.
Unlike a loan, grants are not paid back. Rather, this funding is to help with the research, programs, activities, and resources to help your organization help the community. In other words, grant funding is not typically used for general expenses. Furthermore, it’s worthwhile learning how to increase your chances of being awarded a grant and developing relationships with board members. Otherwise, you could end up being banned if you utilise the funding incorrectly.