www.johnsoncenter.org

Welcome to the Johnson Center

Established in 1992, the Dorothy A. Johnson Center for Philanthropy is an academic center

focused on increasing the efficiency and effectiveness of the charitable sector.

Heather Carpenter, Ph.D.Assistant Professor

School of Public, Nonprofit, and Health Administration

Grand Valley State University

Starting a Nonprofit Organization

February 24, 2012

2:00-5:00 p.m.

Learning Objectives

Learn key steps to forming and successfully running a nonprofit organization.

Turn your passion for a specific issue into a nonprofit organization.

Form new professional and networking contacts through interactive seminar activities.

Introductions

• Name, Organization, Mission/Cause

• Idea or established organization

• Which subsector does your idea/organization fall under?

Nonprofit Subsectors1. Arts, Culture, and Humanities2. Education3. Environment and Animals4. Health5. Human Services6. International, Foreign Affairs7. Public, Societal Benefit8. Religion Related9. Mutual/Membership Benefit10.Unknown, Unclassified

Class Overview

• What does nonprofit mean?

• Overview and Importance of Nonprofit Industry

• Forming a Nonprofit Organization

What Does Nonprofit Mean?

• Tax Exempt Status– 25 tax exempt categories– Public Benefit, Mutual Benefit, Religious

Benefit– 10 subsectors of 501c3 organizations

Types of Nonprofits

• 501(c)(1) — Corporations Organized Under Act of Congress (including Federal Credit Unions)

• 501(c)(2) — Title Holding Corporation for Exempt Organization

• 501(c)(3) — Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations (Public Charity & Private Foundation)

• 501(c)(4) — Civic Leagues, Social Welfare Organizations, and Local Associations of Employees

• 501(c)(5) — Labor, Agricultural, and Horticultural Organizations

• 501(c)(6) — Business Leagues, Chambers of Commerce, Real Estate Boards, etc.

• 501(c)(7) — Social and Recreational Clubs• 501(c)(8) —

Fraternal Beneficiary Societies and Associations• 501(c)(9) — Voluntary Employee Beneficiary Associations• 501(c)(10) — Domestic Fraternal Societies and

Associations

• 501(c)(11) — Teachers' Retirement Fund Associations• 501(c)(12) — Benevolent Life Insurance Associations, Mutual Ditch

or Irrigation Companies, Mutual or Cooperative Telephone Companies, etc.

• 501(c)(13) — Cemetery Companies• 501(c)(14) — State-Chartered Credit Unions, Mutual Reserve Funds• 501(c)(15) — Mutual Insurance Companies or Associations• 501(c)(16) — Cooperative Organizations to Finance Crop

Operations• 501(c)(17) — Supplemental Unemployment Benefit Trusts• 501(c)(18) — Employee Funded Pension Trust (created before June

25, 1959)• 501(c)(19) — Post or Organization of Past or Present Members of

the Armed Forces• 501(c)(21) — Black lung Benefit Trusts• 501(c)(22) — Withdrawal Liability Payment Fund• 501(c)(23) — Veterans Organization (created before 1880)• 501(c)(25) — Title Holding Corporations or Trusts with Multiple

Parents• 501(c)(26) — State-Sponsored Organization Providing Health

Coverage for High-Risk Individuals• 501(c)(27) — State-Sponsored Workers' Compensation

Reinsurance Organization• 501(c)(28) — National Railroad Retirement Investment Trust

What Does Nonprofit Mean?

• Differences than For-profits– Can make a profit– Advancing the Public Good– Nonprofit specialized accounting,

fundraising, board structure

Overview and Importance of Nonprofit Industry

• Number of Nonprofits Today

• Number of Nonprofit Employees

• Number of Nonprofit Education Programs

Is there are Need?

• Exercise: What makes your organization unique?

– Where will you go to research your cause?– Who will you talk to?– What other organizations will you look at?– What makes your organization unique and

different from those other organizations?

Forming a Nonprofit Organization

• Two Options:– Get Fiscal Sponsorship and then apply for

permanent 501c3 status – Apply for 501c3 status

Forming a Nonprofit: Getting Fiscal Sponsorship

• Individuals or groups in a hurry.• Gives the group the ability to apply for

and accept grants, accept tax-deductible donations, and carry on other activities under the tax-exempt status of their sponsor.

• National Network of Fiscal Sponsors– http://www.tides.org/community/networks-

partners/nnfs/

Forming a Nonprofit: Getting Fiscal Sponsorship

• Activities of the sponsored group must be consistent with those of the sponsor.

• There are many situations where using a fiscal sponsor could make sense.

• Many funding sources-foundation will not fund brand new groups.

Forming a Nonprofit: Applying for 501c3 status

1. Create Business Plan2. Draft Mission

Statement3. Recruit Board

Members4. Get a lawyer5. Draft Articles of

Incorporation6. Draft Bylaws

7. Apply for Business Name

8. Apply for Federal EIN#9. File Incorporation with

State10. Apply for Federal Tax-

Exempt Status11. Apply to Solicit and

Receive Contributions

1. Business Plan• Template available from

http://www.sba.gov • Shows:

– Clear and compelling mission– Services that have been thoroughly planned– Market exists for services– Taking advantage of market opportunities– Capable management– Realistic and achievable financial projections

• Accurate Start-up costs

Fundraising Planning Process1. Clarify why the nonprofit needs support

2. Composition of revenue mix

3. Turn case statement into specific goals, objectives, and action steps

4. Identify potential donors

5. Match strategies with gift markets

6. Make solicitations, track the results, recognize the donors, ensure gifts are used for intended purposes and make necessary improvements

2. Mission Statement

• Video– http://www.youtube.com/watch?

feature=player_embedded&v=LJhG3HZ7b4o#!

– Use concrete language– Talk about the why

Mission Statement Examples• To connect people through lending for the sake

of alleviating poverty.• Building healthier lives, free of cardiovascular

diseases and stroke.• To explore, enjoy, and protect the wild places

of the earth; to practice and promote the responsible use of the earth's ecosystems and resources; to educate and enlist humanity to protect and restore the quality of the natural and human environment; and to use all lawful means to carry out these objectives.

Mission Statement Exercise

• Create a Mission Statement for your Nonprofit

3. Recruit Board Members

• You are required to have a minimum of 3 board members to start

• Recruit people you can trust

• Diversity of backgrounds and roles (governance, management, program operations, fundraising, legal, evaluation)

• Constituent/target market representation

Board Member Activity

• Who will you recruit as board members?

Managing Your Board: Finding the Governance Balance

• Board members play an important role in the success of a nonprofit organization.

• Volunteer organization or paid staff.

• Board chairs should encourage dissent, debate and questions, the key is finding the right balance.

Managing Your Board: Board Committees

• Key Standing Committees– Executive, Finance, Fundraising, Board

Development, and Personnel

• Ad Hoc Committees– Strategic Planning– Special Events– Evaluation

• Ideal board size• Frequency of Board Meetings

4. Get a Lawyer

• You can incorporate without one, however it is helpful to receive legal advice from the start

5. Draft Articles of Incorporation

• Template available • Must be a tax-exempt purpose• No profits can inure to benefit any

individual• Cannot be a political organization• On dissolution, all assets must go to

another tax-exempt organization of similar service

Articles of Incorporation

• http://www.sec.state.ma.us/cor/corpweb/cornp/npfrm.htm – Form 502 MI

6. Draft Bylaws• Corporate rules, behaviors, and actions

– Powers of the board– Meetings information– Directors– Officers– Committees– Operational Staff– Fiscal Year– Conflicts of Interest– Amendments

7. Business Name Process

• Name must not already be used in the state

• Name availability search with LARA-Department of Licensing and Regulatory Affairs

8. Apply for Federal EIN#

• National application SS-4 with IRS

• Permanent identity for all government reports and documents

9. File Incorporation with State

• Form 502, Articles of Incorporation (Nonprofit) with the State of Michigan’s Bureau of Commercial Services, Corporation Division– Fee $20

10. Apply for Federal Tax Exempt Status

• Form 1023– You will also need Minutes of First Board

Meeting– It normally takes four to six months from

the time an application for tax exemption is filed with the IRS to receive notice that tax-exempt status has been granted.

Apply for Federal Tax Exempt Status

• Include as supplementary material with Form 1023– Articles of Incorporation– Bylaws– Statement of Current Income/Expenses– Preliminary 3 Year Budget

• Waiting Period/Advanced Ruling

11. Apply to Solicit Donations

• Michigan Department of the Attorney General, Charitable Trust Section

• Annually file

Heather Carpenter, Ph.D.

carpenth@gvsu.edu

Resources and Nonprofit Blog:http://www.nonprofitalternatives.org Twitter: @heathercarpenteDelicious: http://delicious.com/heathercarpenter

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