When we talk about “nonprofit” companies we’re talking about a specific type of business that is exempt from paying federal income taxes. One common way to achieve this tax-exempt status is to not pay out any profits to private individuals—hence the term “nonprofit.”
Starting a nonprofit for your organization, foundation, or charity is simple—especially when you let Epik take care of the grunt work, including submitting your formation papers, functioning as your registered agent, and helping you nail down the financial side of things.
Keep reading to find out if a nonprofit is right for your goals, and learn how to get your vision off the ground and into the world.
What Makes a Nonprofit Different?
While we may imagine nonprofit companies as organizations full of overworked volunteers, the day-to-day reality of a nonprofit isn’t all that different from other kinds of businesses. The difference lies largely in the financial structure of the company and its primary mission.
Nonprofits are organized to serve public or community benefits, like charitable, educational, religious, or cultural purposes, rather than to generate profit for owners or shareholders. Any surplus revenues are reinvested into the organization’s goals rather than being distributed as dividends. Some nonprofits are obvious—churches and charities can be included here—but other organizations include HOAs, sports organizations, and professional associations.
Additionally, nonprofits often enjoy tax-exempt status, meaning they are not required to pay federal income taxes on donations and other income related to their primary mission. This unique focus on social good and the reinvestment of earnings into mission-driven activities distinguish nonprofits from their for-profit counterparts.
How do Nonprofits Make Money?
The term “nonprofit” is admittedly a little misleading, since a business can’t be successful without making some sort of profit. As we said above, the big difference lies in the fact that the profits generated by a nonprofit are not distributed to members as personal income beyond their stated salaries. Instead, any surplus profit is put back into the business in order to further the organization’s mission. That includes updating infrastructure, holding fundraising events, or purchasing new books or equipment.
How to Start a Nonprofit
While the requirements for forming a nonprofit company will vary by state, the general requirements for getting your new business up and running can be summed up in these steps:
1. Name Your Nonprofit
We have a more in-depth guide on choosing your business’s name, but the central thing to focus on is that it is a unique, distinguishable name that can grow with your business. Every state has its own online database that you can search to find out if your potential business name is already registered by another business in your state.
2. Choose a Nonprofit Registered Agent
A registered agent is someone you have authorized to receive legal notices for your company. When you are forming your business, your Secretary of State will require you to appoint a registered agent with the formation paperwork. This person or business will need to be available at the local address listed on the formation paperwork during regular business hours.
3. Submit Your Nonprofit Articles of Incorporation
Filing your formation paperwork with the state makes your nonprofit official. You’ll need to submit your Articles of Incorporation with the state, in addition to paying a state-specific filing fee. While the information required by each state varies, you’ll almost always need at least your organization’s name, your registered agent’s information, a business address, your statement of purpose, and an incorporator signature.
4. Outline Your Nonprofit Bylaws
Once your nonprofit is registered with the state, it’s a good idea to speak with all of the organizers to set out and adopt your nonprofit bylaws. These nonprofit bylaws will specify how your nonprofit functions day-to-day, including director and officer duties. You’ll need these bylaws before opening your organization’s bank account and applying for 501(c)(3) tax-exemption status with the IRS.
5. Request an EIN from the IRS
Every company needs an EIN, or employer identification number, from the IRS. This essentially functions as a social security number for your company, and it is needed for tax and employment functions. Registering for an EIN can be done through the IRS’s website, or Epik can request this for you when you hire us to form your nonprofit.
6. Apply for Your 501(c)(3) Tax-Exempt Status
Nonprofits usually, but not always, apply for 501(c)(3) status with the IRS. To do this, your organization needs to submit an Application for Recognition of Exemption (also called Form 1023 or 1023-EZ) and pay an application fee. This application will ask you to list your organization’s goals and financial details.
7. Apply for State-Level Tax Exemptions
Your nonprofit organization will be able to apply for state tax exemptions, but, again, this will vary from state to state. You’ll need to submit an application to your state’s Department of Revenue (and any states where you’ll be doing business).
8. Apply for the Proper Licenses and Permits
This will vary greatly depending on the scope of your organization. Find out what licenses and permits you’ll be required to have for each state you’re operating in. This will require some research on your part since states often don’t list these requirements on any one list. We recommend checking with your state departments and your Secretary of State to find out what specific requirements are needed.
9. Register Your Nonprofit as a Charity
Registering as a charity is crucial if your organization will be asking for donations from the public, and it can usually be done with your state’s Attorney General’s office. When you register as a charity you’ll have to pay a registration fee, fill out an application, and provide documentation of your tax-exempt status.
10. Set Reminders for Annual Reports
Each state will require some sort of annual, biennial, or periodic report to be filed in order to update your organization’s information. When you hire a commercial registered agent service, they will often send you reminders about these reports and can even automatically file them for you for every state you’re operating in.
Ready to Make a Difference?
If you know that starting a nonprofit makes the most sense for your goals and ideals, then let Epik help you form your dream company. You’ll have the option to access our full suite of business tools and website services to help your vision succeed and grow.
If you’re looking for more help getting all this paperwork started, Northwest Registered Agent provides free templates of the various forms needed to register your nonprofit and more in-depth explanations of what each state requires.