Posts tagged as:

nonprofit

Five-minute lawyer: how to plan a nonprofit

October 25, 2009 · 0 comments

You’ve probably already seen our Five-minute Lawyer post on How to Form a Nonprofit, but sometimes people are at an earlier stage of the process, where they haven’t figured out what they exactly want to do. This process looks a lot like planning a for-profit business in the early stages, but here are a few hints.

In the course of forming a number of nonprofits as the lawyer on the team, I’ve seen the early stages of planning several times.

Most often, people think about what they want to do (mission) and how to approach the problem (strategy). They then turn to friends and colleagues to get a sense of whether the plan seems viable from both “will it work?” and “will people donate to this?” perspectives.

Then, depending on the plan, someone like me gets involved to talk about how to go about putting this activity into action (and here, the process parallels for for-profit process but with some different options thrown in the mix). What I’ve written elsewhere is that not everyone *needs* a new organization, and often times people take on new administrative burdens rather than starting their analysis from a “how best to solve the problem” perspective.

Moving back to the beginning, I’ve come to decide that the best way to go about this is to conduct a little thought exercise or scenario planning: imagine, and then work out with questions and details, what a day in the life of this as-yet-unformed organization looks like. What happens in the morning? Who is that person/people? Why are they there, what do they do? How do they get paid or compensated? Where does that money come from? Running through these sorts of questions further parallel the initial business planning process for traditional businesses, and help put things in perspective when it comes time to formalize a budget.

If you can describe the day-to-day operations of your organization in terms of the goal you have, the actions you take, what resources you will use and how you will acquire them, and the results you achieve, then you’ll be a lot further down the road to formalizing your plan when the time comes.

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Five-minute lawyer: How to form a nonprofit

October 9, 2009 · 1 comment

I regularly find people asking this question: How do I form a nonprofit? What most people mean and want is a charitable organization that satisfies the requirements of IRC 501(c)(3), which gives donors assurance that their donations will be tax-deductible.

To set up a charitable organization, you generally run through the following steps:

1. Determine whether you need an organization at all. The primary reason for the tactical step of forming a nonprofit is to collect donations from other people that (a) will not be taxable to the entity as income and (b) will be deductible by the donor. If your plan matches up with these desires, keep reading.

2. Determine whether your activities will constitute a “charitable purpose.” There are nonprofits that fall into different categories of charity that all for (a) but not (b) above.

3. Form an appropriate entity under state law (note: you don’t technically have to even form an entity in some states and can operate as an unincorporated association). Some states have a nonprofit corporation entity; in others you form a regular corporation and impose special rules in its articles or certificate of incorporation, sometimes referred to as its charter.

4. Make the appropriate IRS and state filings to secure your charitable status.

I have formed a number of nonprofits under various state laws. While having experience is useful when it comes to the corporate governance issues (the actual detailed language in the articles, bylaws, and corporate resolutions, most of the rest of Form 1023 is straightforward. You can probably do much of the work yourself if you like (see this Nolo resource article and the books they provide).

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