Establishing a nonprofit can be an impactful way to give back to your community. Missouri offers a supportive environment for nonprofits, however navigating the startup process can be a daunting task. Approaching the nonprofit startup process in a systematic and organized manner is necessary to ensure success from the start.
Step 1: Planning
Step 2: Entity Formation
Step 3: Organizational Governance
Step 4: Tax-related Filings
Step 5: Ongoing Compliance
Step 1: Planning
The first step in establishing a nonprofit organization is to consider the “Who, What, and How?” of nonprofit organizations. The “Who” is who will be participating in the nonprofit. The “What” is what service or issue your nonprofit will address. This could be housing the homeless or feeding the impoverished. The “How” is how you and your organization will carry out the affairs of the nonprofit.
If you’ve made it to this article, then chances are you at least have an idea of the objective you wish to accomplish. If you don’t have an objective or goal in starting a nonprofit, then you will need to spend time to identify a specific need within your locality.
Assuming you have a goal in mind, the first step will be general planning. Begin to consider potential board members, how much you anticipate the nonprofit to bring in on a yearly basis, and generally how the nonprofit will operate.
In Missouri, at least 3 directors are required to be on the board of a nonprofit. Having an attorney, accountant, or both can greatly benefit you in achieving your startup objectives.
Depending on the gross receipts of your nonprofit, various tax filings will need to be made on a yearly basis. If you do not have an accountant on the board of directors, then we suggest hiring a 3rd-party CPA to conduct yearly tax filings and to assist with ongoing accounting.
Once you have an idea of who can accomplish tax filings and accounting for the nonprofit, you will need to consider how the nonprofit will operate. Nonprofits operate pursuant to a set of written rules called Bylaws. These Bylaws outline things such as conflicts of interest, compensation of employees and board members, amongst other governance and administrative matters.
Once you have considered these basic things: Who, What, How?, we can move onto Step 2: Entity Formation.
Step 2: Entity Formation
- Pick a name
- Submit Filings
- Create
- Hold initial meeting & sign Bylaws
The first step in entity formation will be to choose a name for your nonprofit. If you have a name in mind, we recommend a quick google search to see if any other businesses or entities exist with a similar name. The attorney filing the nonprofit formation paperwork will be best at determining whether a similar name exists through the Missouri Secretary of State website.
Various filings will need to be made to establish the nonprofit as a recognized entity within the state. The primary filing is done through the Missouri secretary of state website. This primary filing creates a type of corporation through the state, recognized as having the word or abbreviation: Inc., Co., Corp., Ltd..
Once the Secretary of State filing is finished, you can create ByLaws and policies to outline how your nonprofit will operate. The ByLaws should outline general governance, such as record keeping, board members, voting, meetings, amongst other things. Samples of Bylaws and other helpful governance documents can be found in the IRS’s Public Charity Life Cycle Page.
An initial meeting should be held amongst the members to recognize and sign the bylaws. These Bylaws bind the members to act in the interest of the nonprofit and to avoid self-interest.
Step 3: Organizational Governance
The Board of directors is an essential element to a successful nonprofit. Apart from fundraising activities, many ongoing issues need individuals dedicated to ensuring smooth operation. Ideally, the board for the nonprofit should have an attorney or accountant. Attorneys and accountants have skills that enable them to save costs associated with starting the nonprofit. If you don’t know an attorney or accountant willing to be on the board, then consider hiring or speaking with these advisors on an as-needed basis. At the very least, they will be essential to getting your nonprofit up and running.
Policies and procedures will need to be set forth in the bylaws, outline how the directors agree to operate the nonprofit. These policies should also set forth considerations such as conflicts of interest and private inurement. Private inurement is benefiting directly or indirectly from the nonprofit.
One aspect to help address concerns with private inurement is to have good record keeping policies. Through good record keeping policies, you will better be able to monitor the health and impact of your nonprofit. Further, good record keeping policies are essential to remain compliant with nonprofit laws.
Step 4: Tax-related Filings
- File for EIN
- Register entity with state tax system
- Register entity with federal tax system
Once you have officially formed your entity and organized with your directors, you are ready to move forward with essential tax documents to establish yourself as a nonprofit. We highly recommend establishing a relationship with a local CPA or accounting firm who can handle the initial tax filings and ongoing compliance for your nonprofit. However, if a CPA is non available, you will need to familiarize yourself with the IRS rules and regulations related to nonprofits. We suggest starting with the Virtual Small to MidSize Tax Exempt Organization Workshop.
First, you will need to obtain an EIN. The EIN is an employer identification number, and is similar to a social security number for the nonprofit organization. This EIN allows your nonprofit to be recognized by the IRS and state as an entity. Further, this EIN will assist in opening a bank account for the nonprofit.
After obtaining your EIN, you can apply for tax exemption within your state. For Missouri, more information can be found on the Missouri Secretary of State website for maintaining nonprofit organizations.
Once you have registered with the state, you can use your EIN (recognizing your nonprofit as an entity) to file Form 1023, which requests the IRS recognize you as a tax exempt entity. More information on Form 1023 can be found on the IRS Public charity life cycle website under application forms.
Step 5: Ongoing Compliance
- Good record keeping
- Yearly filings
- Avoid liabilities which jeopardize exemption
- Required public disclosures
Once again, we suggest starting with the Virtual Small to MidSize Tax Exempt Organization Workshop.The IRS workshop is detailed and does take some take to navigate. In essence, the workshop recommends good recordkeeping practices, good governance, make an initial filing, and maintaining yearly filings. We’ll break down exactly what that means.
The IRS sets forth some considerations for maintaining your nonprofit. Various liabilities can jeopardize your right to the nonprofit exemption. These liabilities include failing to file the yearly 990 series IRS filing, lobbying & political activity, private benefit or inurement, amongst other things. Some liabilities don’t immediately affect your right to exemption, but they cause the IRS to audit you or otherwise fine you. Further, you can face adviser consequences through employment law if you plan to pay employees. The IRS workshop has full information on avoiding liabilities that may jeopardize your exemption.
As discussed, you will want to have a transparent and honest nonprofit. Your nonprofit must stick true to its charitable purpose. These values and transparency are reflected in the yearly form 990-series filing. The 990-series filing is a public disclosure form filed with the IRS that reflects the activities and governance of your nonprofit. This document adds transparency and allows individuals to assess your organization prior to donating. Good recordkeeping practices will help you stay organized for your yearly 990-series filings.We highly recommend meeting with a CPA to learn the form 990 and whether you qualify to file a simplified version of the form. An accountant’s guidance in this matter is invaluable. More details on which Form 990 you may need to use can be found in the IRS workshop.
Summary
Establishing a nonprofit organization is a great way to give back to your community, however, establishing the nonprofit organization is a nuanced and complex process. It is essential that you seek out professional guidance for things that fall outside of your expertise. The set up costs of a nonprofit is likely lower than you might think. Attorneys, CPA’s, and other professionals are always looking for ways to give back to their communities.
Links
IRS: Mid Size Tax Exempt Organization Workshop.
IRS: Life cycle of a public charity
Missouri Secretary of State: Maintaining nonprofit organizations