STARTING A NON-PROFIT ORGANIZATION

Scott G. Weber By: Scott G. Weber

Are you interested in making a difference? Starting a non-profit organization is one of the best ways to bring people together for a particular purpose, get involved in the community, and help those in need whether domestically or abroad. If you have ever considered furthering a charitable, civic, education, or artistic purpose, a non-profit organization may be the right entity to achieve your objective. In addition to the personal benefits that come with being involved in a non-profit organization, there are economic benefits as well, such as obtaining tax exempt status. This article provides a basic outline of the process for creating a non-profit organization.

The first step in starting a non-profit organization (“NPO”) is filing the Articles of Incorporation. Establishing a purpose or mission statement is an important step in drafting the Articles. A purpose statement is generally a one-sentence explanation of your organization’s goals. For example, the Red Cross has the objective to”provide relief to victims of diasters and help people prevent, prepare for and respond to emergencies.”1 The Illinois Non-Profit Act provides a list of purposes for which an NPO may be created, such as scientific, political, athletic, literary, agriculture, social, etc.2 The purpose of your organization must fall within one of the enumerated categories in order to qualify for 501(c)(3) tax exempt status.

Next, you must decide upon a name for the entity. You will also need to select a board of directors for the Articles. There must be at least three members on the board, and it is preferable that they are unrelated to avoid any conflicts of interest. You also must select a registered Illinois Agent and office as well as incorporators to file the Articles.

While the Articles are being filed, the next step is to draft a set of bylaws, and a conflict of interest policy. The bylaws serve as the governing document and should be carefully crafted and tailored to the specific needs of your organization. The bylaws should include, among other concerns, directives regarding the fiscal policies, voting procedures, committees, meetings, directors, members and amendments for your particular NPO.

A well-written conflict of interest policy can be instrumental in avoiding problems with administration issues. The policy should include periodic reviews for potential conflicts and clear definitions of policy violations and goals. The pertinent statutory requirements demand that all transactions be fair to the organization at the time they are made, authorized, or ratified.3 Thus, it is important to draft a conflict of interest policy which prohibits any self-dealing and encourages a director’s duty of loyalty.

The most lengthy form to complete in this process is IRS Form 1023 for 501(c)(3) tax exempt status, which should be completed after the Articles and bylaws. The form contains 26 pages of detailed questions regarding the structure of the organization from both a fiscal and administrative perspective. The form inquires into many aspects of the future NPO from its purposes, to its director compensation, to its sources of funding. In this portion of the process, in particular, it is important to obtain advise from an attorney or accountant.

A charitable organization also should register with the Attorney General, as well as follow annual reporting requirements. If the organization plans on hiring employees, it must apply for an employer identification number (EIN). Again, it is beneficial to have an attorney to help you complete these final steps and to ensure, as your agent, that future reporting requirements are met.

Many of the procedures and concerns relevant to setting up a non-profit organization are similar to those in creating a partnership, LLC, sole proprietorship, or for-profit corporation. If you need assistance in starting a business entity, or dealing with business-related legal issues, please give me a call at 309-674-1133 or email me at sweber@qjhpc.com.

  1. http://www.scncredcross.org/mission.htm. Accessed February 17, 2010
  2. 805 ILCS 105/103.05(a)(1-30)
  3. 805 ILCS 105/108.60(a)