How to Start a Nonprofit Organization

Starting a Nonprofit Organization: Legal Guide

Forming a nonprofit organization involves both state incorporation and federal tax-exempt status. While the process requires careful planning and paperwork, thousands of organizations successfully achieve 501(c)(3) status each year.

Step 1: Define Your Mission and Structure

Before filing any paperwork:

Articulate your mission: What specific charitable, educational, scientific, or religious purpose will your organization serve?

Conduct a needs assessment: Is there a gap that your organization will fill? Are other organizations already serving this need?

Assemble a board of directors: Most states require at least 3 directors. Board members should bring diverse skills (legal, financial, programmatic, fundraising).

Choose a name: Check availability with your state's Secretary of State and search the IRS exempt organizations database.

Step 2: Incorporate in Your State

File Articles of Incorporation with your state's Secretary of State. Your articles must include specific IRS-required language:

Purpose clause: A statement that the organization is organized exclusively for one or more exempt purposes under Section 501(c)(3)

Dissolution clause: Stating that upon dissolution, assets will be distributed to another 501(c)(3) organization or to the government

No private inurement clause: Stating that no part of the organization's net earnings will benefit any private individual

Filing fees range from $50 to $250 depending on the state.

Step 3: Obtain an EIN

Apply for an Employer Identification Number (EIN) from the IRS at irs.gov. This is free and you will receive your number immediately if you apply online.

Step 4: Draft Bylaws

Bylaws are the internal operating rules for your organization. They should address:

Board composition, terms, and election procedures

Officer positions and responsibilities

Meeting frequency and quorum requirements

Conflict of interest policy

Amendment procedures

Fiscal year

Committee structure

Step 5: Apply for Federal Tax-Exempt Status

File Form 1023 (or Form 1023-EZ for smaller organizations) with the IRS:

Form 1023-EZ (streamlined application):

Available to organizations with projected annual gross receipts under $50,000 and total assets under $250,000

Filing fee: $275

Processing time: 2-4 weeks

Form 1023 (full application):

Required for larger organizations

Filing fee: $600

Processing time: 3-6 months

Requires detailed narrative descriptions of activities, financial projections, and governing documents

Step 6: State Registrations

Depending on your state, you may need to:

Register for state tax exemption (not automatic with federal approval)

Register for sales tax exemption

Register for charitable solicitation (required in most states before fundraising)

File for property tax exemption if you own real property

Step 7: Ongoing Compliance

Annual Federal Requirements

File Form 990 (or 990-EZ or 990-N) annually with the IRS

Failure to file for 3 consecutive years results in automatic revocation of tax-exempt status

Make Forms 990 and exemption application available for public inspection

Governance Requirements

Hold regular board meetings and maintain minutes

Comply with conflict of interest policies

Ensure executive compensation is reasonable

Do not engage in political campaign activities

Limit lobbying activities (or elect the 501(h) expenditure test)

State Requirements

File annual reports with your Secretary of State

Renew charitable solicitation registration annually

Comply with state employment and tax laws

Common Mistakes to Avoid

Confusing nonprofit with "no revenue" — nonprofits can and should generate revenue; they just cannot distribute profits to individuals

Failing to maintain corporate formalities (meetings, minutes, separate bank accounts)

Board members with conflicts of interest making decisions that benefit themselves

Not registering for charitable solicitation before fundraising

Engaging in excessive lobbying or any political campaign activity

Treating the nonprofit as a personal organization rather than a public charity

Key Terms: 501(c)(3) — the IRS code section providing tax-exempt status to charitable organizations. Form 990 — annual information return filed by tax-exempt organizations. Private inurement — prohibited personal benefit to insiders. Charitable solicitation — any request for donations.

Disclaimer: Nonprofit law involves both federal and state requirements. Consider consulting a nonprofit attorney, especially for the IRS application. Many state bar associations offer pro bono services for new nonprofits.