A nonprofit organization returns the funds it gets back to the organization in order to promote its mission and objectives. In contrast, a for-profit organization shares its funds with shareholders for its financial benefit. Churches and charitable organizations are the most common nonprofit organizations, but public schools, unions, and public arts organizations are also nonprofit organizations. Founders must follow specific rules when starting a nonprofit organization.
Name the organization legally
Each state requires different procedures to establish a nonprofit organization. The government website of your state should direct you to individual requirements. In Texas, for example, you can establish a non-profit organization by submitting a certificate of training to the secretary of state. It is a good idea to look up the availability of your organization’s name before solidifying it to make sure that another organization is not using the same or a similar name.
Statutes and board of directors
The law requires that a nonprofit organization have a clearly established set of bylaws, which includes basic operational and administrative procedures. The Nonprofit bylaws generally establish the members of the board of directors and the board directs the decisions of the organization and has the legal responsibility of the organization.
Present the articles of incorporation to the secretary of the state office in which your nonprofit organization operates. You must join the organization’s home state if you plan to fundraise there using donation website. The office of the state corporation specifies the incorporation procedures. Incorporation legally creates the organization as a business entity within the state.
Exempt from taxes
The law allows an NPO (nonprofit organization) to be exempt from federal taxes, although not all of them qualify. The process can be a bit slow, the forms can take more than 100 hours to complete and the approval of the Internal Revenue Service (IRS) can take up to a year to complete. First, you have to submit a statement that specifically details the activities and mission of the organization. Second, you have to file Form 1023 with the IRS, which is approximately 30 pages. It is also necessary to pay the fees of the application. The IRS may also require an estimated budget for three years. Many states also provide a tax exemption.
If your non-profit organization has employees, you will need a federal tax identification number or employer identification number. You also have to withhold taxes, Social Security, Medicare and unemployment taxes from employee checks. It is also possible that you have to withhold the payment of disability insurance.