While most people think of nonprofit organizations, or NPOs, as charity groups, it is actually even simpler than that. NPOs do not distribute their earnings or surplus funds to shareholders or owners; instead, the money is given back to the cause pursued by the organization. Thus, besides charities, this definition also can apply to trade unions, advocacy groups, churches, and even public arts promotion teams.
Because nonprofits operate by donating their funds back to their cause, it is important to first create a mission statement if you are planning on starting this type of organization. You should think about how you want the NPO to benefit your clientele or community, as well as what values you want your organization to embody. This can help you stay on track with your goals.
Once you decide on your cause, there are several different levels on nonprofits for which you can apply. First, you may just want to have an informal charity group led by you and a group of friends. This does not typically require legal paperwork to create because it function more like social/volunteer group rather than its own legal entity.
However, if you want to achieve true, legal not-for-profit standing, you should consider incorporating your organization. Incorporation allows your nonprofit group to have its own bank account and property. This also frees you from liability and insures that the NPO will continue after your death. To incorporate, you must fill out specific paperwork and file it with your designated state office.
Next, many NPOs can apply for tax exemption, as well as tax-deductible status. To become tax-exempt, you typically must be a corporation or another such group with legal standing. You should file for tax exemption with the IRS. The most common IRS tax-exempt designation is 501(c)(3).
Tax-deductible status means that people who donate to your NPO can have tax deductions for their charity. This can be very helpful for an NPO because it makes donations much more appealing. To earn tax-deductible status, you must apply to the IRS.
As for directing your nonprofit in the way you want, you should set up a board of directors who are dedicated to fulfilling the mission statement of the organization. Additionally, you should consider setting up specific programs that help you meet your goals in serving the community or other group that benefits from your work. Lastly, you will have the actual staff that completes the day-to-day tasks of the organization.
If you are thinking of starting a not-for-profit organization, you should speak to a lawyer to help you file for incorporation or other legal statuses.
For more information regarding this topic and other aspects of business law, contact the qualified Ellen Rothstein, Attorney at Law, today.