Starting Your Nonprofit Organization

What Is A Nonprofit Organization?  

A nonprofit organization is an entity that does not distribute income to members, shareholders or board of directors.  All income generated must be used for the purpose of benefiting the individuals, group and/or general public for which it was intended.  

Developing a well-written and well thought out vision for the organization is of utmost importance, because it will help to set the organization’s foundation and also serve as a guide in developing the organization’s directives. 

Advantages 

Tax Exemption 

Among the many benefits of forming a nonprofit corporation the top two includes the tax-exempt status and being able to apply for private and public grants.  However, nonprofits can also take advantage of other benefits including lower fees and rates on some supplies, lower postage rates, waiver of bank fees, corporate sponsorships and support. 

Based on the state your organization resides in you will also be able to qualify for other exemptions and benefits as well.  For example, if you have employees certain states do not require nonprofits to pay certain state fees regarding employment.  Many states also provide tax exemptions on automobiles and property.  It will be important to consult a tax attorney, CPA or tax specialist to determine the exemptions that you can apply for in your state. 

Donations 

Another advantage of forming a nonprofit organization is the ability to accept donations from corporations and individuals to further the cause and vision of the organization.  In most cases if you are granted 501c3 tax exempt status by the Internal Revenue Service donations given to your organization are often tax deductible for the donor.  This encourages individuals and corporations to give and will help greatly when you are fundraising. 

Savings on Supplies and Services  

There are several government and non-government suppliers that provide discounts to nonprofit organizations.  This can be a great help especially when first forming your organization. 

Grants 

Applying and qualifying for grants is another great advantage.  There are literally thousands of grant opportunities available for organizations that meet certain criteria.  One of the most important team members of your organization is a grant researcher and writer. 

Many policies and procedures have changed over the last five years regarding public and private grants.  There was a time when nonprofits could depend on a large portion of funds needed to operate from grants.  However, that’s not the case as much.  Although grant funding is available a strong nonprofit organization must also build a strong fundraising campaign that is consistent. 

Disadvantages 

Probably the largest disadvantage of forming a nonprofit corporation is that you can lose control of it and as the founder you are not considered the owner as in a standard business.  If your Board of Directors do not agree with your vision or the way the organization is being ran they can vote to replace you with another CEO.  In addition you cannot always depend on your nonprofit organization to be the sole provider of your income in the beginning.  There are both federal and state laws that restrict the amount of money a founder can earn.  There are also other rule and regulations that allow  

Most nonprofit organization are also prohibited from contributing to political campaigns and in many cases restricted from lobbying as well.  If you will want to do either of the aforementioned in your organization, please consult your tax attorney first before making a final decision to do so.  Going against the tax-exempt regulations can cause you to lose your tax-exempt status. 

Public Record 

As a nonprofit organization you should also know that your financial records are not private.  This means that anyone can request copies of your tax returns and ask for your disclosure of your balance statements at any time.  Most nonprofits maintain quarterly and annual financial and contribution reports for this reason. 

Administrative Requirements 

Nonprofit organizations can also be burdened with a tremendous amount of paper work.  Not only does the Federal Government require you to maintain certain records, but many states have adopted strict regulations and can require quarterly reporting, audits and inspections.  Make sure you check out your state regulations for nonprofits.