Should you be a Nonprofit Organization? Do you want to start a 501(c)(3)?

How do you become a Nonprofit Organization? What does it mean and what are the steps to follow. . .

Robert J. Vickers, Health Care Collaborative of Rural Missouri (and Artful Askers)
(visit www.HCCnetwork.org   OR   e-mail bob.vickers@hccnetwork.org   OR   bob@artfulaskers.com)

 

What do you want to do--what is "on your heart?" What is the call upon your life? Are there other people doing what you want to do? Find others with like-minds and join them. Talk to the leaders of groups doing something similar in other communities. Join others if possible. BUT Gain the knowledge of the "process" so you can take everything with you or help others, too. The easiest part is starting a nonprofit—it is a challenge to keep one going.

Before you decide, ask yourself an important question: Are others doing something similar already? Can you join them and the BOTH of you be stronger? Are you working with others and cooperating and collaborating? There are WAY TOOOOO many nonprofits--much less way too many that don't work together. 80% of them don’t work together enough. No wonder many of them are experiencing decreased revenue. Donors want to see people working together—they do NOT fund lone rangers anymore.   --there are talkers.   --there are doers.   --Either way, try to work together until unbearable.

Are you helping to create and facilitate "Public good" for people in your community or target audience?

MANY important considerations and steps to follow in becoming a nonprofit: Although not necessarily required in order, these are the steps and I suggest this order so that one document builds on the next.  If you choose to use my templates and if you want my assistance, guidance and feedback, I ask that you NOT change anything electronically until I am aware of the changes and can anticipate the effect in the remaining documents. There are 4 primary documents that you must complete and file as a packet to the IRS: Your organizations Articles of Incorporation, ByLaws, the 1023 (Federal Application) and Attachments of Explanation. ALL FOUR documents are woven together such that a change on one requires a change on another. If you do not make certain that they are congruent and coordinated, changes without consistency can lead to rejection.

1. Register your "Fictitious Name: "at the Secretary of State’s office in your State. This allows you to be “legal” and tells them who you are and who is behind your public organization’s name. It also allows you to be legal and raise money. You should put a LOT of thought into what you name your organization: Your name should say who you are and what you do. . . Once you have settled with a name, you should register the name. In the State of Missouri, you register your fictitious name at www.sos.mo.gov for $7 to $10. (For another State, it would be www.sos.ab.gov where ab is your State’s two letter abbreviation.)  Make certain that you print this document’s application you submit, the acknowledgement from the State AND the certificate hard copies BUT also that you save it electronically, too. Use a permanent address in that state. You will select “New corporation” then nonprofit. Call Bob if you need help. I suggest that you NOT use “fund,” “foundation,” “ministries,” NOR any other toooo religious-sounding words in your name. NOT everyone needs to do this, though.

2. Identify an “Incorporator” and “Incorporating Board:”—The Incorporator is you OR the primary individual who is setting up the nonprofit and will be responsible for the organization over the longer period of time. This is the ONE person to fill everything out as the Incorporator and 2 additional people who sign your initial documents when needed. You need their name, address, City, State and zip, and a quarter-page bio. Your Incorporating Board will be you plus 2 others. There must be 3 people filling 4 offices—The President cannot also be Secretary. Use YOUR LEGAL NAME filing ALL documents.

3. Develop and file your "Articles of Incorporation:"which includes essential elements about being a “benefit to public good” organization that you must meet legally. It also addresses membership, non-discrimination, dissolution, etc. and filing this at the Secretary of State’s office allows you to be an official "business" of a nonprofit. You need to file this with your Secretary of State. Although MOST States allow you to file this online using their form, I recommend that you file this in person using the four page template I have developed that is legal in every State. Most States have Secretary of State offices in larger cities in their State. Most online forms do NOT have enough information to submit with your 1023 Application to the IRS. The cost to file in person is only $25 to $45 dollars BUT make certain to get your original PLUS one copy. In this document, you will need multiple Purpose Statements to cover for your intended nonprofit purpose for your Articles and your By-Laws--and ALL must cover “Public Good OR Public Benefit.” You must also include one or more identified areas of Education, Religious, Scientific, and Common Good of the Community or other. Need 6 or 8 or specific statements supporting your purpose in Articles and in ByLaws. Your statements should be detailed BUT also broad--straightforward. (Maybe even 3 each category that you identify.) My template includes sample statements from other organizations for you to utilize and develop your own. You will need the name and physical address for your organization’s location that will be relatively permanent and accessible. I suggest you use your home address or something that will always be “forwardable.” Should you move, you can always file an address change. In fact, most Secretary of State’s offices require you to file updates every one OR two years. Bob has a shell template for this by request.

4. Register for your EIN:Your “Employer Identification Number” or EIN is the same to an organization as the Social Security Number (SSN) is to an individual. The EIN is simple to get and is Free from www.irs.gov. This is Federal BUT you will need it for your By-Laws and other documents. Use the same address as the incorporator. Make certain that you print this document’s application you submit, the acknowledgement from the Feds identifying your EIN number AND the certificate--all hard copies BUT also that you save it electronically, too.

5. Select and Develop your “Advisory Board:"You should ALWAYS have an Advisory Board. They will have no legal standing and no fiscal responsibility BUT it shows others (especially donors and others in the community) that you have people helping you and speaking into your life and organization. Usually an Advisory Board is 5 to 7 people who give you advice and direction.

6. Select and Develop your “Legal Governing Board of Directors and Officers:"Most often called Fiduciary Board or Board of Directors, be careful in your selection of these folks. There are a number of different ways to choose them BUT several key components: Ask people who support you and your cause and will always KNOW that it is your vision and organization. Make certain they will always support you—or if they cannot, that they will resign rather than try to take the organization away from you. Also, ask people who share your vision and give (of their time, energy, support, money, encouragement, etc.) AND who share your vision and will get givers (of their time, energy, support, money, encouragement, etc.). Generally, an odd number works best usually 7 to 9 people. Two or three professional, two or three personal, and two or three from the community. To start, I suggest NO MORE than 5 or 7 people. Keep records for your organization from the start. To start with, have you as incorporator, your two incorporators and two others to be a part of your Board and then expand it as you can with interested people. You should NEVER have more than 17 Board Members or so. We can identify a range in your ByLaws of no less than 3 nor more than a certain number—7, 11, 13, 17, etc.

7. Develop your "By-Laws:" This is your organization's governing document--Location, Membership, Purpose, Mission, Past, Present and Future, Scientific, Religious,  Education, Common Good of the Community or other.  Need 6 to 8 specific statements supporting your purpose in Article/Section II. Detailed BUT straightforward. Follow template and it is MUCH easier. BUT remember this, any change you make on one document of the four documents (Articles, By-Laws, 1023 Application and Attachments to the 1023) means change on the others. If you utilize my templates, it is set-up for that. By-Laws specific Information, too (see sample): 1) Number of Board size (smallest possible and largest possible BUT not less than ?), 2) What will be your Quorum—one-third or one-half Members? 3) Any Copyright or Idea Ownership? Explain. 4) Board Rotation, Definition, Type and Relationship? 5) EIN from IRS 6) Date of Actual Incorporation when filed with Secretary of State? And 7) Other stuff?  (I teach all of this in a one-day workshop and have recorded a DVD Series addressing all of this and weaving it through for the entire overview of philanthropy and serving.) Bob has a shell template for this.

8. IRS Application 1023:This is the Federal application and you cannot get around it nor the fee. There is a long and short form. The short form is only $450 to file BUT the risk is that if you raise more than a certain amount of money in the first 3 to 5 years, the fine can be as much as $15,000 to $30,000. The longer version costs $850 to file and this is what I recommend to every organization. Either way, define yourself correctly and answer the questions in an honest way about the present NOT the future--NOT too broad and not too strict. The Long version--26 pages. $850 but specific requirements of size.     The Short version--6 pages. $450 but limited and fines follow with violations. This application will require copies of your Articles, Certified Secretary of State copy, Original By-Laws, a copy of your Fictitious Name Registration, your check to the IRS, etc. and MUST be submitted in VERY specific order. They even tell you what to paperclip! Follow directions to the T.

9. "Attachments to 1023:"You need to get “Bios” of Board members—a one-third to pone-half a page (I can provide samples if needed), a full one-page summary of the organization (larger picture overview of the who, what, when, where, why, and how sort of thing), a one-half page of Past/Present/Future Activities, and answer specific information based on your 1023 answers. We also need to define any knowledge and disclosure of initial Board relationships. Any related by marriage, business, etc? Bob has a shell template for this. However, remember: ALL four documents must be consistent and congruent—don’t change much one to the next without talking to Bob about how the templates work together.

Eventually, after filing, you need other items more fully developed for sharing the vision and writing grants: Bob has a grant proposal template by request.

10. Your "Mission Statement:"A Mission Statement is 25 to 40 words or less on what you actually do every day! It always starts with the words, “Organization Name exists to: then 25 to 40 words.”

11. Your "Vision" and Strategic Plan:Vision is the bigger picture that you are trying to accomplish (but never will) in 2-3 paragraphs and how you go about it! You will likely NEVER fully accomplish your Vision. People don't want to know what you know BUT they do want to know what they need to know to support you. They also want to know that you know more! The Strategic Plan is your basic outlined and explained strategy to accomplish what you want to accomplish. I suggest Step 1, Step 2 through Step 5 OR Phase 1, Phase 2 through Phase 5.

12. Your Defined "Target Audience:"1 or 2 paragraphs of who do you serve: demographics and descriptive information. Individual being served and descriptive information, Demographic, geographic, ethnographic etc. Put something together that says to a donor, “I’ve done my research and I KNOW my audience big-time!”

13. Your "Organizational History:"1 paragraph maximum with specific information they need to have on file. Usually who founded it, when, why, etc. Use a specific year the problem emerged as well as the year when you or whomever began to do something about it.

14. Your "Type of Organization:"Using their words. Your name, are you a nonprofit, when where you founded (or how much experience do you have), when and where were you founded and how are you governed. NEVER say we are brand new. Sif your incorporating year is less than 5 years, talk about the experience you and the Board Member have. For example, If you are just now incorporating a youth organization but you have been involved in the same basic industry of education and youth with church and school, rather than saying we are a brand new youth ministry incorporated last year, “say, “Although the Board of Directors has more than 147 years combined experience working with you, we recently incorporated as a nonprofit to further address the problems.

15. Your Budget and other elements:On one page in 6 or 8 to no more than 12 categories. Funders want to see 33%/33%/33% (one-third operating, one-third sustainability and one-third focused on program or target participants. There are other guidelines such as tracking the value of Volunteers and hours, value of in-kind contributions, number impacted in community and so on. No more than 5 to 7 categories to top off your Budget Page (see sample). Don’t ignore how important this is—donors KNOW that money is not the problem nor the solution and they know that cash giving is only 7.3% of all giving. This is a chance for you to say that you glean and leverage to give a HUGE return on each dollar invested!  I can also explain the 28% giving to Operating rule.

16. When ready AFTER you receive your IRS ruling:file for Tax Exempt status at the State level. Register for Tax Exemption at your Secretary of State’s office and this is different than the federal registration and does/means VERY different things. Tax Exempt renewal is required every 2 to 5 years. No rush on this until paperwork complete.

17. EVERY YEAR, you will file some type of tax return:Maybe a full 990, maybe a 990-EZ or maybe just a 990-F or postcard. This all depends upon how much money you bring in each year.

18. Every year OR two: You will renew your State Level information, too. This can all be completed online.

18. MANY other considerations:
            --Maintain adequate records.
            --You are responsible for associated taxes for salaries if appropriate.
            --You should follow your By-Laws in meeting frequency BUT a minimum of 4 times a year is recommended.
            --You should meet regularly and maintain records.
            --Open a bank account usually once you have your Articles filed. Other bank account issues. . .
            --Maintain and preserve Budgets for previous 2 years, current year and next year. 
            --Adequate separation of duties and explanation.
            --Nondiscrimination Statement.
            --Dissolution and Conflict of Interest Clauses and Statements.
            --Follow LOTS of rules.
            --Strong recommendation: Work and talk together!
            --Also, hire an accountant to maintain your books and teach you.

            --Staying in Good Standing with Donors and Supporters? Staying in Good Standing with Volunteers?
                       
Write Thank Yous to Volunteers and Donors. Within 5 to 7 days. Handwritten in blue ink.
                        Relationship=communication. So, communicate: Letters. Thank yous to donors, too. Press Releases.
                        Website is essential. Static information you want to share. Brochures and Newsletters. Facebook is essential-
                        -exchanges information and interacts. Grant Proposals. Record your vision, inscribe it and SHARE it!

Share your vision NOT your need for money!

 

When I help you to complete the packet, here are the items I need in the order in which I will need them. . . Please send them to me at bob.vickers@hccnetwork.org   OR  bob@artfulaskers.com in a single electronic file and when you receive something from the State or Federal Agencies, please forward a copy to me, as well:

 

 

For Your Articles of Incorporation:
   --Name of your organization—I can help you decide this. Certain words to use/not use.
   --Register fictitious name with Secretary of State (use your legal name and permanent address). There is a small fee for this
       ($8 to $15 or so)
   --Legal name and permanent address of Incorporator (probably you!). Address where business is conducted?
   --Name and addresses of 2 others in addition to you. Should be people close for signatures (I can advise you on this).
   --3 or 4 broad statements about your purpose and mission statements for each of the following categories you include:
      Public Good, Charitable, Education, Scientific, Religious and/or Common Good of the Community.

For Your Bylaws:
   --All of the above completed PLUS. . .
   --EIN from the www.IRS.com.
   --Decide how often you will meet? Monthly? Quarterly? At minimum 2 times per year. (Keep minutes for these meetings.
   --What do you want for a quorum?

For 1023 Attachment:
   --All of the above completed PLUS. . .
   --Names and addresses of 3 to 5 additional Board Members.
   --Bios for ALL Board Members.
   --1/3rd of a page of, “Past, Present and Future.”
   --One page Summary of need/your response—how did org come about, what are you thinking, what do you expect, etc?

For 1023 Application itself:
   --All of the above completed PLUS. . .
   --Budget (I can help with this)

It needs to go in a VERY SPECIFIC AND EXACT ORDER!
   --Eventually, you will need to enclose a check to the IRS for $850.00.

PLEASE NOTE: I have a set of four documents to use as “Templates,” “a Guide” or a “shell” of each of these documents. I am happy to provide them for no charge by request of bob.vickers@hccnetwork.org. BUT if I am helping you, PLEASE allow me to make the electronic changes.