How to Start a Nonprofit
One of the most common questions we hear is
"How do I start my own nonprofit?"
By following the steps below, we hope that many of your questions will be answered. These resources are certainly no substitute for legal advice from an attorney familiar with the law of tax-exempt organizations in Alabama.
While we offer the resources here for informational purposes, we highly recommend also consulting with legal counsel to ensure that you are in compliance with all federal, state, and local regulations governing the establishment and operations of a nonprofit, tax-exempt organization.
- Nonprofits are incorporated entities and follow the correct process with the Secretary of State before applying for exempt status with the IRS.
- Alabama law requires a minimum of 3 board members.
- Nonprofits must register with the Attorney Generals office each year if they are soliciting funds in Alabama.
- Nonprofits must file a 990 every year.
- Nonprofits don't pay taxes. Once your organization receives a letter of determination from the IRS, your organization will be exempt from federal income tax, HOWEVER state sales tax and employment taxes will have to be paid.
- I can "own" a nonprofit. Nonprofits are NOT owned. They are governed by the board of directors and held in the public interest.
- It is easier to run an organization with all volunteers. While great volunteers are key to helping nonprofits deliver their mission, you still need policies and procedures in place to manage the operations of the organization.
Do Your Research
Before starting a nonprofit, it is critical to examine the need for another nonprofit.
There are currently over one million charitable nonprofits in the United States and over 14,000 registered nonprofits in the state of Alabama. If there is another organization that focuses on issues related to the mission you envision for your new nonprofit, consider working with the existing group to expand their operations by including your new nonprofit's mission as a program, rather than creating a new organization.
There are many ways to have an impact in your community, and starting a new nonprofit may not always be the best answer. Volunteering, serving as a board member, donating or creating an advised fund with your local community foundation are all excellent ways to get involved.
Most experienced people teaching others how to create a new nonprofit devote a substantial amount of time trying to persuade people that creating a nonprofit may sound like a good idea, but deserves deeper exploration.
- Determine how you will measure success as you implement your programs.
- Get educated about the legal and ethical responsibilities associated with starting and operating a nonprofit.
- Create business plan and a 3 year budget to ensure sustainability.
- File a Name Reservation with the Secretary of State
- File the Certificate of Formation with the Secretary of State
- File Form 1023 with the IRS
- Register as a nonprofit with the Attorney General's office
- File Form 990 each year. Form 990 is due approximately 3 months after the end of the organizations fiscal year. Check the IRS website for exact dates