If you are interested in championing a charitable cause, you may be curious about how to go about starting a non-profit organization. However, before you choose this option, it’s important to understand the distinction between nonprofits and for-profit organizations.
What Exactly Is A Non-Profit Organization?
Interestingly enough, the distinction between a charitable organization and a regular business may not be as broad as you might think. Although the public often views nonprofit organizations as distinctly different from for-profit companies because nonprofits have filed for the IRS for 501(c)(3) tax exemption and exist as charities, non-profits often share a great deal in common with regular businesses.
The reason for this common point of confusion is because the public is often made aware of nonprofits due to the media publicity that unincorporated nonprofits receive.
Why Unincorporated Nonprofits Are the Exception
Unincorporated nonprofit associations are the exception rather than the norm, and they come into existence to satisfy a singular, time-bound goal before dissolving. Usually, they are small in size, only work with volunteers, and have only a small revenue, often less than $5,000 in annual income. Staff sizes are small and the organization has a simple structure. Those nonprofits that don’t incorporate usually pursue time-limited actions, say, providing disaster relief in an emergency like assisting the inhabitants of a coastal city hit by a tsunami.
Similarities Between Non-Profit and For-Profit Organizations
Since most nonprofits do incorporate, despite the fact that they exist as charities, means that they share all benefits of incorporation, with the biggest one being that its board members and workers receive protection against personal liability.
Non-profit organizations are often branded, striving to elevate their brand by working with association management organizations like SBI to execute marketing plans to engage members, and non-profits also pay staff salaries, provide employee benefits, and invest their funds via endowments. Additionally, they might also sell products and charge for services. When they do make a profit, they do make must use it to fulfill their stated charitable mission. With all these moving parts and pieces it is important to have good management, which can be provided by companies like http://sbims.com/
It is also possible that nonprofit and for-profit organizations work in a partnership for mutual benefits.
Differences Between Non-Profit and For-Profit Organizations
If nonprofits are so similar to for-profit businesses, then, you might wonder what the big difference might be, other than tax status and purpose.
There are three primary differences:
The first primary difference is that nonprofit organization are owned by the public. No single person owns the business nor owns its property and assets. What’s more, all income earned is not allowed to go its members or its shareholders. Trustees, that is, it’s board of directors, are responsible for legal compliance and fiduciary issues. They can be held liable if they fail to abide by the laws or use the organization’s money for their own personal gain.
The second primary difference is that while executives and staff do get paid for their work, volunteers also play a large role in the organization.
Finally, the third primary difference is that while a nonprofit will meet many of its operational needs by earning an income, it also depends on public donations for help in fulfilling its charitable mission.
3 Basic Steps to Starting a Charitable Organization
While you have to take a large number of steps before you start a charitable organization, they can be chunked into three distinct phases.
- Identify a cause to serve.
Naturally, the first thing you must be clear about is the reason for your organization. You must identify a cause. What social need do you want to support or overlooked safety issue do you want to improve?
- Do your business research.
Just as in starting any business, you must do your research to understand the full extent of your idea. Is there a demand for the product or service that you plan to offer? Does the idea make sense from a business perspective? Is this issue you want to address already being handled by a government agency or an existing nonprofit?
- Create the business infrastructure.
Lastly, once you’ve got clear about your purpose and done comprehensive research about the feasibility of your idea, you must set up the organization. You will need to establish a board of directors, write a business mission statement, apply for incorporation as a nonprofit organization in your home state, secure an EIN number and prepare your articles of incorporation. Since the paperwork for the articles of incorporation and filing for your 501(c)(3) exempt status is complicated, you will need to work with a law firm to make sure that everything gets done properly.
In conclusion, before you create a charitable organization, it’s imperative that you understand the distinction between a regular business and a charitable one, as well as understand all the necessary legal, economic, and IRS regulations that you will need to comply with to set it up.