Thinking of Starting a Nonprofit Organization?

If you've ever thought about starting a business that incorporates your desire to help a cause or community, a nonprofit may be a type of business you'll want to explore. Nonprofit organizations come in many sizes and can have focuses in many areas, from granting wishes to children with medical conditions (Make-A-Wish Foundation) to animal welfare (ASPCA) to music education programs (The Fender Music Foundation). Whatever your passion, it can help inspire you to build your nonprofit's mission around it and potentially create a long-lasting legacy.

What is a Nonprofit?

A nonprofit corporation is an organization that exists not to reap profits, but to benefit a cause or a community. Nonprofits can come in many forms, but generally fall into five categories: trade associations, charitable organizations, social clubs, government groups and political groups. They can be public or private—the main difference being the outreach to and contributions from the public or private sectors.

Like a corporation or LLC, a nonprofit protects you from personal liability and its structure is such that it allows you to explore ways to raise funds to make your vision a reality. One of the benefits of organizing as a nonprofit is that your organization can apply for tax-exempt status with the IRS. If your organization qualifies as a religious, scientific or educational organization, it may also qualify for 501(c)(3) status with the IRS. A 501(c)(3) organization is exempt from paying income taxes and is eligible to receive tax-deductible donations.

The Big Questions to Ask Before Starting a Nonprofit

If you have a worthy cause and you're considering launching your own nonprofit organization, ask yourself these key questions that can help you plan for your nonprofit's success.

1. Why – Why start a nonprofit?

Why do you want to start a nonprofit? What is the motivation behind your desire? The National Council of Nonprofits suggests asking yourself lots of questions about your motivations to start a nonprofit, including who will be involved and what would make your organization unique. Does this type of nonprofit already exist in your area? Why or how is yours going to add more value to the community? Get to know the space and network with local nonprofit leaders to get a better understanding of what the community needs.

2. Who – Who will benefit and what will your nonprofit do?

As you research the ins and outs of starting a nonprofit, you should begin to solidify the purpose of your organization. Who or what group will benefit from your nonprofit? What will your nonprofit actually do to benefit that group? Where will your nonprofit be located? Who will be on the board? These are questions that can be addressed through a well-researched business plan. This research will help to put together your group's mission statement, bylaws and rules.

3. How – How will it be funded?

This is a tough question for any organization, but nonprofits must essentially plan their entire business plan around one key element: funding. Do you have stable and sustainable sources of revenue? Who are your donors and how will you reach out to them for contributions? Spending the time beforehand to research the basics of nonprofit funding and its challenges—as well as opportunities—will help save you valuable time later. The National Council of Nonprofits and the Society of Nonprofit Organizations offer a wealth of resources on funding and solicitations.

Are You Ready for the Challenge?

Striving to make a difference in your community is an admirable mission. But like running a business, know that there may be challenges to starting a nonprofit. Even larger global nonprofits such as the Red Cross and Unicef had humble beginnings and likely faced many obstacles. But with passion and diligence, your nonprofit dream can become a reality, and the emotional rewards may be well worth the effort.

If you're ready to start a nonprofit corporation or already have a nonprofit corporation and would like to apply for tax-exempt status, LegalZoom can help. Learn more about nonprofits or for information on applying for a 501(c)(3), click here.

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