While passion likely drives your nonprofit startup, new organizations require a balance of mission commitment and legal structure.
Failing to implement a rock-solid foundation of compliance can lead to crippling issues, like loss of tax-exempt status or reputational damage. Yet, every element of a successful startup, from bylaws creation to hiring, should also be purpose-aligned.
This checklist outlines the crucial steps to build a compliant and mission-focused 501(c)(3) organization.
The Foundation: Legal Structure and IRS Compliance
Incorporation and Bylaws
According to Foundation Group, establishing a nonprofit corporation is the first step in starting a 501(c)(3) organization. This process involves creating bylaws, which outline rules for governing the organization.
Your bylaws should include (but are not limited to):
- The name of your organization
- A statement describing your organization’s purpose
- A description of your nonprofit’s governance structure
Nonprofit incorporation also requires startups to request a Federal Employer Identification Number (FEIN) from the IRS and file Articles of Incorporation with their state government.
Applying for 501(c)(3) Status
IRS Form 1023 is the official 501(c)(3) status application. It requires organizations to report details like:
- Organizing documents (like Articles of Incorporation)
- Past, present, and future activities
- Recent financial data
Compliance expertise or expert guidance is especially helpful when filing Form 1023. It’s 28 pages long, but applicants must attach additional materials, which can significantly increase the total submission length. Also, required schedules and attachments may vary depending on whether you’re starting a public charity or private foundation.
Building Your People Strategy: The Board and Staff
Establishing a Nonprofit Board
The board of directors is an elected governing body that oversees your organization’s operations. Their key responsibilities include:
- Setting the organization’s strategy and goals
- Monitoring progress toward mission-centric goals
- Ensuring compliance with legal standards
- Determining compensation for executives
- Overseeing the organization’s financial health
To set your board up for success, recruit members who are eager to learn and grow. As your organization scales over time and inevitably faces challenges, flexible board members will adapt your nonprofit’s governance as needed.
Hiring Nonprofit Staff
Next, hire a team to operate your nonprofit and further its progress toward its mission. Keep in mind that nonprofit hiring differs from traditional hiring in that it must be mission-driven and requires a focus on long-term strategy.
Astron Solutions provides the following tips for improving employee recruitment:
- Write thorough job descriptions.
- Respond quickly to interested candidates.
- Use a total rewards strategy, which encompasses both financial and non-financial compensation elements.
- Leverage talent management software.
- Offer a robust onboarding process.
Many nonprofit startups also outsource, considering their size and limited budget. For example, your startup may not be able to afford a salary and benefits package for a full-time bookkeeper. Instead, you can outsource to a fractional bookkeeper who works on an as-needed basis.
Operations: Technology and Compliance
Nonprofit Technology
An often overlooked, yet extremely important, component of starting a nonprofit is acquiring the tools you’ll use to execute daily operations. Especially considering recent advancements in AI-driven software, technology can streamline nonprofit work and save time that you can allocate to more mission-critical areas.
Common tools your nonprofit may need in its tech stack include:
- Budgeting software
- A constituent relationship management (CRM) system
- Prospect research solutions
- Marketing and communication tools
- Volunteer management software
- Fundraising solutions
Naturally, the technology you’ll need will evolve over time as your organization’s priorities change. Choose scalable platforms whenever possible to minimize the risk of outgrowing the systems you use.
Maintaining Compliance
Compliance maintenance doesn’t end once your nonprofit startup matures. Your organization has ongoing responsibilities, such as:
- Applying for (and renewing) fundraising registration in your state
- Submitting Form 990 to the IRS each year
- Completing employment-related filings, if applicable
Working with a consultant not only ensures ongoing compliance but also provides a safeguard against severe consequences for noncompliance. For example, if you’re wondering how to file a Form 990, a compliance expert can answer your team’s questions, but they can also help you apply for 501(c)(3) status reinstatement if you forget to file for three years.
Meticulous planning lays the groundwork for long-term organizational success. Approach these steps with the same dedication you have for your cause, and you’ll form a nonprofit that not only meets, but exceeds its goals.
