FAQs

Here are the eight general steps to forming a nonprofit corporation:

1. Establish a Business Name – Choose a business name and perform a search of the Secretary of State to ensure it is available. Nonprofits have perpetual existence.
2. Prepare and file all paperwork yourself or consult with a specialist who will ensure you are compliant with all rules.
3. Complete an IRS tax exemption application – In order to accept charitable contributions from donors, filing as a 501(c)(3) organization is a must. This is done through Form 1023. While you are filing information with the IRS, apply for an EIN number.
4. Complete a state tax exemption application – States have specific filing requirements and rules for nonprofits as well if they would like to have tax exempt status.
5. Create Bylaws – Bylaws are specific rules and regulations written and adopted to control the actions of the members or employees. They must be filed along with other paperwork and are a requirement by the IRS.
6. Appoint directors – Nonprofits are governed by a Board of Directors. This is the governing body for the corporation. They have decision-making authority to set company policy, adopt bylaws, name members of committees. The board of directors is liable for the actions of the firm’s policies and actions.
7. Hold an initial board meeting – The initial meeting of the board is held to appoint directors and bylaws.
8. Apply for licenses and permits – Certain nonprofits require licenses and permits before starting fundraising efforts.

Civic leagues, homeowner’s associations, and groups endorsing a political candidate are common types of nonprofits that don’t qualify for 501(c)(3) status.

Both have 501(c)(3) status, but how they get funding differs. Public charities typically get funding through the general public and government. Private foundations typically get funding from a few individuals, a family, or a corporation.

You have options as to where it is best to file your paperwork.

Most nonprofit corporations are formed in the state in which they will primarily operate.

Yes, to receive donations from residents of the state, many states require registration as a nonprofit with the secretary of state.

Here are some common tax forms used for charitable entities:

• Form 990: Return of Organization Exempt from Income Tax
• Form 990-EZ: Short Form Return of Organization Exempt from Income Tax
• Form 1023: Application for Recognition of Exemption for 501(c)(3) Charitable Organizations
• Form 1024: Application for Recognition of Exemption for 501(a) Organization
• Form 1120: U.S. Income Tax Return for Certain Political Organizations

The initial success of a nonprofit will be the responsibility of the Board of Directors. The organization needs a dedicated board of directors to govern the nonprofit.  CIG has developed some basic information to help your board along the way.

The governing body will have decision-making authority to set company policy, adopt bylaws, and name members of committees.  The board is liable for the actions of the firm’s policies and actions.

The board creates and follows the Bylaws of the organization.

The initial Bylaws are established when the nonprofit organization was formed. When done properly, the Bylaws typically exceed fifteen (15) pages.

Bylaws include the name and principle office, purpose of the organization, powers, number of directors, officer duties and term limits, vacancies, qualifications and election of new board members, regular and special meetings, quorum requirements, compensation, committee requirements, general policy guidelines, ethics, whistleblower policy and a conflict of interest policy.

The Bylaw may be amended, altered, repealed, or restated by a vote of the majority of the board then in office.

However, no amendment can cause the corporation to cease to qualify as an exempt corporation or affect the voting rights of the directors. All amendments must be consistent with the Articles of Incorporation.

Form 1023 is an Application for Recognition of Exemption. It is required by the IRS after you receive your employee identification number from the IRS.  If done properly the document will be approximately 10 pages or more. CIG can help you get started.

It includes a narrative that describes the organizations past, present, and planned activities. It names the officers, directors, or trustees. It includes a conflict of interest policy and agreement and definitions and procedures regarding duties of disclosure, minutes, compensation, annual statements, and periodic reviews.  It describes how the organization uses outside experts and carries out its mission for exempt purposes and a description of fundraising efforts and grant solicitations.

Budgets don’t have to be complicated to be helpful to your organization. While many smaller nonprofits may not require a budget, it is a best practice and will be required as the organization grows and prepares grants. CIG is here with information to help you get started.

• Organization-wide operating budgets that account for everything your organization spends to administer all programs and activities. For small nonprofits, the project proposal and organization-wide budgets might be the same.
• Program budgets  are the budgets you submit to a funder as part of a grant application. Think of these budgets as a way to describe your project’s story to grantmakers with numbers, instead of words. Many funders say that the proposal project budget is the first part of the application they review.
• Capital budgets are used for construction or big, one-time spending projects that often take more than a fiscal year to pay for.
• Cash flow budgets (cash flow forecasts) are planning schedules that track when money is expected to come in and go out of your organization

Funders want to see project proposal budgets that convey credibility and impact. The budget should explain the components of the project, what’s required to make it happen, and how much support you’ve already secured.

Funders like to see sustainable budgets with diversified income sources, rather than solely relying on one funder for all support.   

Digital technology will continue to reinvent the way nonprofits operate in the future. It has already changed the way we interact with others. We can now deliver our message to a larger audience at a lower cost.  Virtual events, on-line training, and on-line meetings are here to stay.

While we may see more organizations returning to the office for certain functions, remote work is here to stay as more employees and employers see the benefits.  Recruitment and policies will change as more candidates expect to work remotely, and organizations will draw on this wider talent pool.

Organizations will increase digital applications and become more agile to try new technologies.  This will change the culture into something more dynamic, iterative, and digitally driven. 

Customer Relationship Management Platforms (CRM) for nonprofits are growing in popularity and costs are very reasonable.  These CRMs will save staff time and increase fundraising efforts to a broader market.

The first step is to set a fundraising goal that has the support of the organization. 

To gain support requires an open discussion with your board members, executive director, and senior leaders. 

Each member needs to share perspectives on what is needed and what is realistic compared to previous years.  What contributed to your success in the past, what held you back, and what has changed? What can we do differently?

To make it sure the goal is realistic, it is important to determine responsibilities for meeting that goal. Address the role of the Board verses the staff members.  This may be challenging at first, however, will make for a better plan to implement and measure for results.

There is no one fundraising method that works best for all nonprofits.  There are several methods to consider which include some of the more effective:

1. Annual fund appeal (mail and email)
2. Corporate Gifts (Sponsors)
3. Foundation Grants (private and public)
4. Major Gifts (Target higher net worth individuals)
5. Annual Events (major event)
6. Special Events (smaller events during the year)
7. Special Campaigns
8. Capital Campaigns.
9. Membership Programs or Dues

Regardless of the method used it is important to develop a Plan for Retention.  Nonprofits lose more than 60% of their donors each year because they lack a plan for retention.  Nonprofits often focus on chasing the new donor.  It is cost effective to develop a plan which will encourage donors to sustain and hopefully deepen their investment in your organization.  After all, they already believed in you to give you money.  Issue thank you letters, show them how the money was used, provide newsletters to keep them engaged, provide success stories and a case for support.  CIG can help develop a plan for retention using technology by establishing a CRM platform, creating form letters and techniques.  It can help in preparing a case for support unique to your organization.

Every board is different, and the board will make the final decision.  Here are some general guidelines.

1. Start by giving summary information so that they can comprehend the big picture.  They need key pieces of information, any new patterns or conclusions that have emerged from all the numbers you’ve reviewed
2. Establish Clarity and Transparency. Objectivity and accuracy are vital so the board knows where things stand.  If there are problems or potential warning signs, they need to know.
3. Show them the Big Picture so they understand the past and present to give them a perspective they need to look into the future. If they ask questions or need more detail, make sure you have it available or that you will provide it at a later date.  Visuals are helpful to paint a clear picture without getting into too much detail.
4. If you need board approval, after showing them the big picture first, then provide specific financial information to address the issue that requires approval.