How Much time it get to start your nonprofit organization?
Now that you understand why it may benefit you to incorporate your nonprofit, let’s talk about the time frame you can expect. Often the first question clients ask me as it relates to starting their nonprofit is “how long will the process take?” The answer to this question is “it depends.”
Generally speaking, there are typically two parts to the process of starting a nonprofit. The first part is that you need to legally form or “incorporate” your nonprofit so that you can begin operating on the state level. The second part of the process includes filing the paperwork necessary for your nonprofit to become “501c3 tax-exempt” on the federal level.
Incorporating nonprofit organization
Let’s discuss the “incorporation” part first. As we discussed earlier, incorporating your nonprofit means filing paperwork with your state as well as with the I.R.S. to create the nonprofit as a legal entity. Once your nonprofit is incorporated, it is officially registered and able to begin operating. The timeline for this part of the process depends on how long it takes to prepare your paperwork as well as how long it takes for your state’s division of corporations to approve all of the documents.
At my law firm, we don’t view incorporation as a fill-in-the-blank exercise as many modern companies do. We help clients start sustainable nonprofits that are structured for growth and success in an evolving economy. As such, when my firm first meets with a client that needs to incorporate their nonprofit, we start by taking the time to learn their overall vision, short-term, and long-term goals. This is important because incorporation is about creating the legal structure of an organization and the wrong structure can lessen your chances of accomplishing your goals.
For example, some of the initial considerations when incorporating include:
1. Choosing the name of the nonprofit – We will discuss this later in the book and I will share how to avoid liability when selecting a name;
2. Selecting Board Members;
3. Selecting Nonprofit Officers – they are different from board members;
4. Nonprofit Purpose – this must be specific enough to meet the strict I.R.S. requirements but broad enough to encompass the founder’s vision;
5. Asset Protection Clauses – this language helps to reduce liability on the part of the board members for actions of the nonprofit as we discussed earlier;
6. Disposition of assets – you must outline specifically how assets will be disposed of in the event that you decided to shut down the nonprofit;
7. Prohibited activities – this section should spell out activities that your nonprofit will not engage in and should be written in conformity with I.R.S. guidelines;
8. And more!
This list is not intended to be comprehensive. Instead, I just want to give you an idea of the things that you need to consider when initially structuring your nonprofit. Instead of seeing incorporation as just being a cookie-cutter one-size-fits-all setup, see it as the actual foundation of your organization. At my firm, I’ve trained our entire team to focus on structuring the nonprofit the right way from the very beginning. This saves our clients both time and money because their paperwork will not need to be changed again before applying with the I.R.S. or before soliciting funding.
Applying For Tax Exempt Status
The second part of starting a nonprofit is applying for tax-exempt status with the I.R.S. This is the part of the process that involves completing the federal application for tax-exempt status with the I.R.S. as well as in some cases the state application for tax exemption.