What are the requirements for a nonprofit?
A non-profit is, at its core, an organization that focuses on bettering the community. Entrepreneurs who are interested in starting a non-profit organization generally start by choosing a name and putting together a mission statement. In order to qualify as a non-profit, the organization must meet two broad requirements:
- Helping the community. First, as noted above, it must focus on helping the public
- Without making a profit. As the name suggests, the organization must operate without making a profit.
It is important to clarify that “not making a profit” does not mean that those working for the organization are volunteering their time. Those who work with the non-profit can receive a salary, similar to any other job. However, the organization itself does not use any funds that it earns to pay off shareholders or other members. Instead, the organization must generally re-invest these funds into the community.
One way to help ensure the non-profit meets the first requirement is within the mission statement. The business owner can draft this statement to outline how the organization will serve the community. Next, the business leader will gather a group of individuals to serve as the board of directors and choose a legal structure for the non-profit. Examples can include a corporation, association or trust. The board of directors will then help put together the non-profit organization’s bylaws, which help guide the workings of the organization. It is important to keep the organization’s mission statement in mind when drafting these documents.
Once this is done, the organization will file articles of incorporation with the state. New York state law generally requires the applicant to file a Certificate of Incorporation. In addition to basic information within the form, the application also requires information including an explanation of why the business owner is forming the corporation, who will benefit from the corporation, and how the corporation will achieve its purpose.
Next, the organization can reach out to the Internal Revenue Service to request tax-exempt status. The IRS will recognize a variety of organizations for this category, including charitable, religious, social welfare, veterans, and agricultural organizations.