One of the best ways to give back to the community on a larger scale is by starting a 501c non-profit organization that will help the ones in need and might inspire others to join the cause. While the idea is appreciated, it takes more than just a thought to get a non-profit organization up and running. It might take months or even years for a charitable organization to stay afloat.
But, if you are really passionate about starting a non-profit organization then that’s all you need to begin this journey. In this article, we have provided 4 steps to guide you in the right direction and for you to understand what you will be in for. However, it’s recommended that professional legal help be consulted because the process to apply for and to become a non-profit organization may vary from place to place.
What is a Non-Profit Organization and what does 501 (c) mean?
A nonprofit is what describes a non-profit corporation, which can be any form of a charitable organization recognized as tax-exempted by the Internal Revenue Service. To start a nonprofit organization, it’s important to understand what it means legally. Therefore, the organization is not liable to pay income tax on the donations and earnings it gets.
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Step 1: Creating a Mission Statement of 501(c) organization
Before you begin drafting your mission statement for your 501(c) organization, a good idea would be to pick a cause and do some research on already existing organizations working on the types of causes in the community. Find a gap in community services and build your organization on it. This way, it will be easier to gain support and donations because you will be adding more value to the community you aspire to improve and work for.
Broadly, a mission statement describes the purpose of and need for the organization’s existence. According to the Internal Revenue Service, for an organization to qualify as a tax-exempted entity, it needs to pursue activity from one of the following types:
- Promoting national or international amateur sports
A strong precise and informative mission statement is what’s needed to obtain the status of a non-profit organization and it would also potentially help to invite volunteers, board members, and donations: three very important stakeholders for the success of a charitable organization.
Step 2: Recruiting Nonprofit Board Members
Every 501(c) organization needs members who will serve on the board. Since the board members are what make the governing body, they need to be recruited efficiently based on their expertise for the long-term success and functionality of the organization. The board is accountable for performing different types of roles including legal responsibilities. Once you have the designated members you can move on to the next step immediately.
Step 3: Apply For EIN Number & Tax-Exempt Status
After you have formed your board, every tax-exempt organization needs a federal Employee Identification Number (EIN) that will be registered with the state and can be easily obtained online. The EIN is compulsory when applying for the tax-exempt status. The next step is to fill and submit the Form 1023 (Application for Recognition of Exemption under Section 501(c) (3) under the Internal Revenue Code).
The information provided in the form is the basis for the IRS to grant you the tax-exempt status. The application form is approximately 12 pages long and needs to be truthfully filled out. The average evaluation time can take anywhere from 3 to 5 months. There is an application fee as well and your application will not be processed until that is paid. A determination letter from the IRS will reveal if you’ve been granted the status or not.
Step 4: Complying with Local and Corporate Requirements
After getting your tax-exempt status, other local requirements need to be looked at like licenses, permits, local regulations or building codes. It’s also important to understand corporate requirements like filing information, keeping meetings and timing minutes because once you are approved at all levels, you can easily function as a non-profit organization and start focusing on the goals you have for it.
These 4 steps broadly give you an idea of what needs to be done to start a 501(c) organization. After all, the legal work is taken care of and your organization is up and running, you have to work on maintaining the organization’s status. Certain rules and regulations are to be followed by the organization to keep the status it has been granted. If under any circumstances, the rules are not followed, the status can be revoked by the IRS.