Learning when you are allowed to and how to start a non profit business are critical steps in a business such as this.
Because of their tax exempt status, non-profit companies must be managed closely. Learn the subtleties of starting a non-profit business…
Non-Profit companies provide a great service for the betterment of society. Often, many wonderful charitable causes are taken up by non-profit entities and with great success.
Sometimes, this success is so profound that it inspires others to take up the mantle of operating a non-profit business.
Of course, wanting to run a non-profit business and following all applicable laws necessary to launch a non-profit venture are different beings.
No, that does not mean that it is difficult to start a non-profit business. It just means your strategy and operational plan must be clearly spelled out in your nonprofit business plan.
There are, however, a number of important steps one must follow in order to learn how to start a non profit business and subsequently legally launch such an operation.
Articles of Incorporation – How To Start A Non Profit Business
The first step in how to start a non profit business would be to file Articles of Incorporation with the Secretary of State’s office in the same manner you would incorporate an LLC or Corporation.
These articles serve the same purpose: they protect employees and board members of the Non-Profit agency from being liable for debts or damages awarded in civil litigation.
In short, the non-profit company becomes a business entity separate from the individuals who own it.
Non-Profit 501(c)(3) Status
The second most critical step involves filing for 501(c)(3) status with the Internal Revenue Service. This is very important because it brands the non-profit entity as tax exempt on all revenues it earns.
Of course, there are rules and requirements that must clearly be followed in accordance of the law or else the 501(c)(3) status will be revoked.
For example, 501(c)(3) companies are barred from political campaigning. Violations of the rules and regulations of this status can prove disastrous. As such, deviations from acceptable behavior should never occur.
Employer Identification Number (EIN)
In addition to filing for 501(c)(3) status with the IRS, it is necessary to acquire an Employer Identification Number as well. This is important because you will need an identification number when you file taxes on your 501(c)(3).
Yes, you do need to file a tax return on a non-profit even if it is tax exempt. In terms of time and cost, an EIN number is free and can be acquired online, over the phone or sending the application through the mail.
Individual State Rules
It is also advisable to check with your state income tax board and file for the state’s specific tax exempt status. Remember, 501(c)(3) status only applies for federal tax purposes. For state tax exemptions, the rules and requirements may vary allow although the state process will not be more complicated than federal requirements.
Once you form your non-profit business it is absolutely critical that the members are not trying to personally enrich themselves. That is, the income derived needs to actually go to the charitable causes it is intended. While nominal salaries are allowed, diverting significant revenue to personal accounts would constitute fraud.
Such violations could constitute criminal acts and are best avoided. If, however, you keep your non-profit company “above board” there is no reason why it would not enjoy many years of success and prosperity.
There are other aspects that may be beneficial when learning how to start a non profit business, but the items listed herein are the most important: incorporate, file for federal and state tax exempt status and acquire a employee identification number. Basically, that’s it!