Learn something new every day More Info... by email
From a legal standpoint, it is relatively simple to start a 501(c)3. If you are in America, all that is required is that you file paperwork with your locality and the US Internal Revenue Service (IRS). From a business standpoint, however, it is much more complicated to start a 501(c)3. As when starting any other kind of business, you will need to consider everything from your mission to your accounting practices.
To legally start a 501(c)3, the first step is to file Articles of Incorporation with the state in which the business will reside. This establishes the business as a corporate entity. The second step is to apply to the IRS for an Employer Identification Number (EIN) by filing Form SS-4. Finally, apply for tax-exempt status using IRS Form 8718, also known as User Fee for Exempt Organization Determination Letter Request, and Form 1023, the Application for Recognition for Exemption. Depending on where you live, you may also have to apply to your state for tax-exempt status.
Filling out Form 1023 is the most complicated and time-consuming part of the legal process. It may take 50 pages or more to provide all the information the IRS requires to permit you to start a 501(c)3. This includes details about your organization's purpose, programs, and governance. You may wish to hire a professional to help you complete this paperwork and increase your chances of recognition. To ensure that your 501(c)3 status will be applied retroactively, be sure to file your 1023 within 27 months of filing your Articles of Incorporation.
A nonprofit organization is a business like any other, and to start a 501(c)3, it is helpful to have a business plan. As a 501(c)3, your organization will be accountable to the public, funders, the government, in addition to the other potential supporters and stakeholders. A business plan will help you make appropriate business and financial decisions. These include a budget, a reliable accounting system, and a record-keeping system.
In addition to financial concerns, you may want to consider your organization's mission and develop a mission statement. As a corporation, you will also need bylaws. These are not mandatory to start a 501(c)3, but may provide useful guidance as your organization finds its footing. Finally, you will need to form a board of directors, the minimum size of which differs from state to state. The board may begin by adopting the proposed bylaws, electing officers, and empowering them to begin the business of the organization.