Starting a Non-Profit Organization: 501c3 Organizations

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Non-profit organizations form an essential part of the endeavours in development and welfare of human society.  They are a legally recognized mechanism that work towards ensuring justice and equality in a society that is sometimes dominated by opportunists and the material-minded business and political class. 

Non-profit organizations can be formed to promote arts, culture, science, sports, religion and for undertaking any other permitted activity without a profit motive.  They are normally started by a group of people coming together for the promotion, support, growth or highlighting a common cause or concern which may have social ramifications.  Such organizations can be formed for private causes as well, but will be required to fulfill criterion under applicable law.  The term 501 c3 refers to a provision of the Internal Revenue Code issued under the laws of United States of America, which deals with exemptions from income tax on the contributions received by a charitable organization.  It must be noted that this exemption is available only upon exclusively pursuing a specified set of activities and certain activities such as political campaigning, influencing or lobbying for legislation etc, are not included. Starting a non-profit organization takes time, and money to keep it going. Following are a few broad steps for starting a 501 c3 non-profit organization (NPO).

Step 1

Brainstorming with team membersStatement of mission/purpose. In order to learn how to start a non-profit organization, you need to establish what your organization stands for. As a first step, it is essential to prepare a statement of mission/purpose that clearly outlines the purpose of the organization, the philosophy behind its formation and the reason for its existence.

Step 2

Board of Directors. An NPO needs to be administered by a group of qualified people; choose a set of people having commonality of beliefs and goals, who are willing to devote necessary time and resources for working towards the common cause.  It will help if the members of the board are qualified in varying disciplines such accounting, finance, law, technology, public administration and so on.  There are provisions on minimum [usually three] number of directors in each NPO and this is decided by legislations issued by the states.

Step 3

Articles of Association. Articles of association contain the objective to be pursued by the NPO, its formation, rights, responsibilities and obligations of the board members and rules for functioning and administration.  When setting up a non-profit organization, this document should be registered with an agency nominated by the State.  Besides the foregoing, the Articles also contain provisions that distinguish members of the NPO from itself, thereby making the organization the holder of properties, contributions, and assets and also being liable for the debts and liabilities incurred.

Step 4

Byelaws and rules. Besides the Articles of Association, it is advisable to draft byelaws or rules that govern the operations of the organization. You may want to look at sample non-profit bylaws from other organizations. It is not essential to register the byelaws, but may be adopted by the members for their self-governance.

Step 5

Systems. It is very essential and legally required that every NPO has acceptable and efficient systems for accounting, finance, operations and expenditure incurred by it.  Minutes of all meetings of the boards, committees and groups must be maintained in writing and authenticated by the chairperson of the meeting.

Step 6

Acquiring status as a 501c3 NPO. There are 501c3 requirements that must be met. Every NPO desirous of having its contributions exempt from tax under the IRS Code is required to register with the appropriate agency, normally the local office of the IRS. Pay the necessary filing fees, submit appropriate forms, documents, declarations and other relevant information - fees depend on the budget of the NPO.  There may be exemptions under state and local laws as well, which will require a separate 501c3 application process. 501c3 organizations take some work to establish, but the filing status can be helpful come tax time.

There are various laws and regulations that govern the formation and functioning of a 501c3 organization.  It is highly recommended to seek professional help from attorneys and Chartered Accountants for starting a 501c3 organization as well as obtaining their advice in day-to-day functions.  It is useful to include board members with experience and skills in these domains as well.


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