Forming a nonprofit organization is by no means an easy task because it requires a lot of hard work, patience, commitment, and critical thinking. While the entire ordeal may seem stressful or even intimidating at times, if you adopt a methodical approach, you can be successful in your initiative.
Starting a nonprofit takes plenty of courage, and everyone should applaud your commitment to helping your community. Here is a guide to lead your steps in the right direction.
But first, let’s understand what makes an organization a nonprofit.
A nonprofit organization operates and provides its services without expecting to make profits. Its goal is to serve the public interest, and it’s often tax-exempt by the IRS. There are over 25 types of nonprofit organizations, each having unique rules for lobbying, eligibility, tax-deductible contributions, and electioneering. The most common types of nonprofit organizations are charitable, religious, scientific, educational, or concerned with public safety.
Now that you understand what a nonprofit organization is let’s figure out what starting one implies.
Pick a name for your nonprofit
Once you know the organization’s purpose, you can start thinking about the name. There are numerous ways to pick the name, but the safest option is to select a unique one related to one of the organization’s main activities. The name choice sets the tone and influences the brand, so it’s best to take some time and think about this choice thoroughly.
Small guide to pick your nonprofit’s name
– Brainstorm ideas with your team
– Make a list of names that sound inspiring, and highlight the ones that look memorable
– Keep in mind what the organization’s mission is
– Pick an easy-to-remember name
– Don’t use industry-specific or technical terms
– Use abbreviations if they sound catchy
– The name should include one of the following words: company, corporation, incorporated, limited
Before you decide on the name, check the availability of web domains. Even if you don’t want to make a website now, buy the URL to prevent other organizations from acquiring it.
Create a mission statement
The mission statement is essential when you form a nonprofit corporation because it clarifies its purpose and works as a motivation tool for volunteers and staff. It sends out a powerful message to have a great mission statement because it tells the public what you stand for, where you focus your energy, and what motivates you to make further decisions.
Here is how to come up with a fantastic mission statement for your nonprofit:
– Make it simple, unambiguous, and easy-to-understand
– Make it brief and to-the-point
– Make sure it informs the public about what you do and guides the stakeholders and organization’s team
– Review it frequently because it can change and evolve together with the enterprise
– Share it with everyone
– Don’t make it sound like a marketing tagline
– Use expert language and avoid generalities and buzzwords
Choose a nonprofit corporation structure
You can pick from three types of nonprofit corporations in Maryland.
– Religious corporations appropriate for religious congregations that request tax-exempt status.
– Tax-exempt nonstock corporation appropriate when the organization applies for federal income tax exemption under 501(c)(3) or other IRC subsection for non-profit enterprises.
– Nonstock corporation appropriate when one or more individuals engage in the non-profit.
Hire a registered agent in Maryland
All nonprofit organizations in Maryland must nominate a registered agent. What is a registered agent? A Maryland registered agent is an individual or business entity that receives all legal documents on behalf of the organization. Some consider it as the nonprofit’s point of contact with the authorities. Who can act as a registered agent? A registered agent is a resident of Maryland or a company that provides registered agent services.
Choose the directors and officers
The directors of a nonprofit work together to form the board responsible for overseeing the enterprise’s operations. The other organization members (secretary, president) have individual authorities and responsibilities and are referred to as officers.
A nonprofit set in Maryland should have the following structure:
– Minimum 3 directors who aren’t related to each other
– A president
– A secretary
– A treasurer
Someone can have more officer positions, but when documents require two officers’ signatures, it requires more individuals.
Working with skillful organization members is one of the most important steps in building a successful nonprofit. The directors and officers are responsible for supporting daily operations, making hires, making strategic decisions, and ensuring the enterprise complies with the local regulations. Consider the abilities, skills, knowledge, and other traits that make an individual the ideal candidate for the position they’re recruited.
File the Articles of Incorporation
File the Articles of Incorporation with the State of Maryland to register your non-profit. In the Articles of Incorporation, you must state some aspects to ensure that the enterprise is eligible to apply for the 501(c)(3) status.
State the purpose – your nonprofit’s purpose should be limited to one of the following categories to qualify for the 501(c)(3) status: testing for public safety, preventing cruelty on humans of animals, fostering amateur sports events, literary, educational, scientific, religious, charitable.
State the dissolution – you must explicitly describe how the organization uses its assets and what happens with them if it’s dissolved. The 501(c)(3) status requires the assets to be used according to the purposes approved under the same section.
Get the employer identification number
The Employer Identification Number, also called the Federal Tax Identification Number is used to identify the entity as a nonprofit organization. It works similar to a social security number. You need the Employer Identification Number to open a business account for the corporation, serving federal and state tax purposes, and hire employees.
You must address the IRS to obtain an Employer Identification Number (free of charge). You can do it online, on the official website, or you can send a mail.
Establish your bylaws
The initial governing documents and policies serve as operating instructions. At the first Board of Directors meeting, create and develop a conflict of interest policy that establishes what happens when someone in a key position has competing interests. The IRS requires your organization to approve and adopt the initial governing documents and policies before you apply for the 501(c)(3) exemption.
Get a Maryland state identification number
All nonprofit organizations are automatically enrolled in the property tax system. Submit the Form CRA: Maryland Combined Registration Application to the Comptroller of Maryland online or by email.
Apply for the 501(c)
This step allows you to apply for grants and boost fundraising success. Check the eligibility requirements to determine what form (Form 1023-EZ or Form 1024) you should use and if you meet the conditions to start a 501(c) nonprofit. After they review your application, the IRS sends a Determination Letter to recognize the tax exemption.
Apply for State Tax Exemptions
After you get the Determination Letter you can apply for State Tax Exemption. Check the requirements in your state to understand what conditions you must meet because they vary from an area to another. You must submit an explanation of the type of nonprofit you want to start, and document its scope, purpose, and financial statements.
Some states also allow filing for Sales Tax Exemption. Ask an expert if your organization is eligible for it.
Register for charitable solicitation
Maryland is one of 41 states that require nonprofit organizations to register for charitable fundraising annually. You can register with your home state but also with other states, depending on your association’s goals. Before you start an online or national fundraising event be sure to research the requirements in that state.
Get other business permits and licenses
Besides the above paperwork, you also need some extra licenses and permits to run the organization legally. According to the type of corporation, you start the federal, state, and local requirements differ.
Congratulations! You formed a legitimate nonprofit organization to support your passion and benefit your community.