If you want to make a difference in the lives of others, it is easier to do so with the help of others in an organized manner. This means you will want to consider starting a non-profit organization (NPO). Below we look at when it makes sense to open an NPO, the advantages and disadvantages of doing so, the steps you need to take, and how to partner with other companies for mutual benefit.
When It Makes Sense to Start a Non-profit Organization
Generally, people start NPOs when they feel strongly about a particular issue and want to contribute to change for the betterment of society. This could be at the neighborhood or local level, for example, to provide sports opportunities for disadvantaged children. An NPO at the state or national level might be concerned with raising the academic performance of K12 students so that more of these kids can attend universities and get degrees. Any number of world problems can be addressed at the global level, such as eradicating world hunger.
Unlike a normal business, an NPO is not interested in generating profits. Its objective is to see that donations reach the recipients of the program and improve the quality of their lives. If this aligns with your vision, then an NPO is a good choice.
The Advantages of a Non-profit Organization
The main advantage of an NPO to its founders is that they can incorporate to limit their personal liability for debts incurred by the non-profit organization. NPOs can be sued on common liability grounds. While incorporation will protect your home and car, it cannot prevent risks, and these must be managed as for any other company.
Another key advantage is that NPOs can apply for tax exemption. Take note that you do have to put in an application for exemption from federal and state taxes. These are two separate submissions.NPOs are eligible for some grants, provided they are tax-exempt. These do not need to be repaid and can extend the work you are doing. Some of these amounts are incredibly generous. People are more likely to make contributions to an NPO because of its tax-exempt status. They can also get a rebate on their donations. NPOs are considered more trustworthy.
An NPO does not belong to its founders. It has perpetual existence meaning that the owners can retire at some point with the assurance that their work will continue. Additionally, it has a formal structure, with directors to manage it. This ensures transparency and accountability and makes the NPO more effective in its decision-making.
The Disadvantages of a Non-profit Organization
Costs associated with starting an NPO include an incorporation fee and between $250 to $850 to apply for a tax exemption. The process for the latter requires completing almost 30 pages of documentation and takes three to six months. Mistakes in the application can cause further delays. Not all applications are approved; for example, a country club may not make a profit but does not qualify for an exemption.
As a director, there is no profit sharing. All profits made by an NPO are channeled back into its work. Penalties and loss of tax exemption are likely if profits are taken.
There is tons of paperwork involved in an NPO: financial records, registration permits, copies of bylaws, and tax-exempt documentation. Annual reports must be filed. You will also need to complete an IRS Form 990 showing your income, despite it being tax-free.
Applying for grants can be time-consuming. You will have to make many applications and go through the processes with each. However, only some will be approved.
An NPO is open to public scrutiny. They will receive criticism and unsolicited advice. Members of the public are permitted access to all your business records.
Steps for Starting a Non-profit Organization
If you are still keen to start an NPO, the first step is to choose a business name. You will need to make sure no other company or NPO is using it. Here are some tips on selecting a name.
The next step is to get your NPO incorporated. You can complete the process yourself or go through a company that does this for you. Incorporation is necessary to get your tax exemption status. Thereafter, you must put through two applications for your IRS and state tax exemptions.
Drafting the bylaws for your NPO is an important step. Bylaws provide direction for the directors on how to manage the NPO. You can use a template or get an attorney to assist you.
You will need to appoint a board of directors. It is best to advertise the posts and shortlist candidates who have experience running an NPO as well as the specific type of charity involved. Once you have held interviews and selected the directors you should hold your first board meeting.
Now you are ready to get to work. Don’t forget to get any permits and licenses required.
Partners for Your Non-profit Organization
It is useful to form partnerships with other businesses. These partners will take the role of sponsors to enable you to hold events for fundraising under their banner and yours. This provides them with positive outreach into the community and tax deductions on contributions. It gives you money to operate with or provides a service.
Givebutter is a platform that provides a service to organizations involved in non-profit fundraising activities. The company was launched in 2016. They were named the #1 fundraising software in 2020, and they now power millions in fundraising campaigns and online donations. You can see some Givebutter reviews here. These Givebutter reviews will help you decide if it’s a platform worth looking into.
The interests of both parties should be aligned and not in conflict. This means having shared values, such as protection of animal rights, or sustainability of the environment. Partners should be clear on the tangible and intangible benefits each will receive.
An NPO is the visible result of your passion and initiative to make a change for the better in the world.