Legalities of starting a nonprofit organization

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Learn the ins and outs of starting a nonprofit organization, from legal requirements and formation steps to common pitfalls and FAQs to ensure a smooth journey.

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Ever thought about starting a nonprofit organization to make a real difference in your community? You’re not alone. Many people have taken up the mantle of championing important causes, but there’s more to it than just goodwill and determination. There’s a whole legal labyrinth to navigate! If you want to know what a nonprofit organization is, head over here for our in-depth blog post. 

In this article, we’ll break down the legalities of starting a nonprofit organization, provide some helpful tips, and answer frequently asked questions. With a bit of elbow grease and the right information, you’ll be well on your way to making the world a better place.

1. Choosing Your Legal Structure

1.1. Trusts

Trusts are an age-old legal structure that can be used to manage and distribute assets for a specific purpose. They’re great for small-scale nonprofits that focus on a single cause.

  • Pros: Simple structure and easy to set up
  • Cons: Limited flexibility and more difficult to change over time

1.2. Associations

Associations are a popular choice for community-based nonprofits, such as sports clubs and hobby groups. They’re generally run by a committee of members who work together to achieve their goals.

  • Pros: Democratic structure with shared decision-making
  • Cons: Can be challenging to manage larger-scale operations

1.3. Corporations

Corporations are the most common legal structure for nonprofits, offering a stable framework and liability protection for board members. Ideal for nonprofits with employees, significant funding, or complex operations.

  • Pros: Limited liability, tax-exempt status, and access to grants
  • Cons: More complex to set up and maintain

Incorporating Your Nonprofit

2.1. Drafting Bylaws

Bylaws are the rulebook for your nonprofit, outlining how it will operate and make decisions. Think of them as the backbone of your organization, so take the time to get them right.

  • Tip: Consult with an attorney or use a template to ensure your bylaws are legally sound.

2.2. Appointing a Board of Directors

Your board of directors will be responsible for the strategic direction and financial oversight of your nonprofit. Choose wisely, as these individuals will be the driving force behind your organization’s success.

  • Tip: Diversify your board with people who have different skills, backgrounds, and expertise.

2.3. Filing the Articles of Incorporation

To officially establish your nonprofit, you’ll need to file Articles of Incorporation with your state’s Secretary of State office. This important document lays the foundation for your organization’s legal existence.

  • Tip: Ensure you include specific language required for tax-exempt status.

Obtaining Tax-Exempt Status

3.1. Applying for Federal Tax Exemption

To become a federally tax-exempt nonprofit, you’ll need to submit Form 1023 or 1023-EZ (for smaller organizations) to the Internal Revenue Service (IRS).

  • Tip: Be thorough and complete in your application to avoid delays or rejection.

3.2. State and Local Tax Exemptions

In addition to federal tax exemption, don’t forget to apply for state and local tax exemptions, as they may have different requirements.

  • Tip: Check with your state and local tax agencies for specific application procedures.

4. Keeping Your Nonprofit Compliant

4.1. Annual Reporting

Nonprofits are required to file annual reports, such as Form 990 with the IRS, to maintain their tax-exempt status. These reports provide transparency and ensure that your organization is operating within legal guidelines.

  • Tip: Stay organized and keep accurate records to make annual reporting a breeze.

4.2. State Registration and Reporting

Your nonprofit may need to register with your state’s Attorney General or other regulatory agencies. Additionally, you may be required to file annual reports and financial statements with these entities.

  • Tip: Familiarize yourself with your state’s specific requirements and deadlines to stay compliant.

4.3. Maintaining Good Governance

Good governance is essential for the long-term success of your nonprofit. This includes regular board meetings, strategic planning, and updating bylaws as needed.

  • Tip: Provide ongoing training and support for board members to keep them engaged and informed.

Tackling Fundraising and Donor Management

5.1. Building a Robust Fundraising Strategy

Without a doubt, fundraising is the lifeblood of your nonprofit. Developing a solid fundraising strategy is essential for your organization’s sustainability and growth. Consider multiple avenues, such as grant applications, individual donations, corporate sponsorships, and fundraising events.

  • Tip: Regularly evaluate and adjust your strategy to keep it fresh, relevant, and effective.

5.2. Cultivating Long-Term Donor Relationships

Building strong relationships with your donors is vital to securing ongoing support for your cause. Don’t just focus on one-time donations; instead, cultivate long-term connections by keeping donors informed, engaging them through various channels, and expressing gratitude for their contributions.

  • Tip: Personalize your communication and show donors the real impact of their support.

Embracing the Power of Volunteers

6.1. Recruiting and Retaining Dedicated Volunteers

Volunteers can be the driving force behind your nonprofit, contributing their time, skills, and passion to advance your cause. Attracting and retaining dedicated volunteers requires thoughtful recruitment strategies, proper orientation, and ongoing support.

  • Tip: Offer meaningful opportunities that align with volunteers’ interests and abilities to keep them engaged and motivated.

6.2. Building a Vibrant Volunteer Community

Creating a sense of community among your volunteers not only fosters camaraderie but also contributes to the overall success of your organization. Encourage teamwork, celebrate achievements, and provide opportunities for social interaction to build a thriving volunteer network.

  • Tip: Regularly acknowledge and reward your volunteers’ hard work to show appreciation and foster loyalty.

7. Frequently Asked Questions (FAQs)

Q: Can I pay myself a salary if I start a nonprofit?

A: Yes, you can. Nonprofit employees, including founders and executives, can receive reasonable compensation for their work. Just make sure that the salary is in line with industry standards and doesn’t raise any red flags.

Q: What are the main differences between a nonprofit and a for-profit organization?

A: The primary distinction is the purpose of the organization. Nonprofits exist to serve the public good, while for-profits aim to generate profits for their owners or shareholders. Nonprofits also have tax-exempt status and must reinvest any surplus funds back into their mission.

Q: How long does it take to start a nonprofit organization?

A: The process of starting a nonprofit can take anywhere from a few months to a couple of years, depending on factors such as the complexity of your organization, state and federal registration requirements, and obtaining tax-exempt status.

Q: Can my nonprofit organization make a profit?

A: Yes, a nonprofit can generate a surplus, but the key difference is that these funds must be reinvested into the organization’s mission rather than distributed to owners or shareholders.


Starting a nonprofit organization is no walk in the park, but it’s a rewarding journey for those who dare to tread the path. By understanding the legalities and taking the necessary steps, you’ll be well on your way to creating a successful and impactful organization. Remember to stay focused on your mission, keep up with regulatory requirements, and surround yourself with passionate individuals who share your vision. Together, you can make a lasting difference in the world.

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