In my book Starting Your Nonprofit: A Workbook to Guide You Through a Million Exciting Tasks, I simply the process of starting a nonprofit organization (in the United States) into eleven steps, twelve months, and about one thousand dollars.
If you’re considering starting a 501(c)(3) nonprofit organization, I suggest having a look at Part 1 of this blog series before reading on. In Part 1, I went over Steps 1, 2, and 3. Today, I’ll be going over Steps 4, 5, and 6. These steps are taken directly from my book.
Let’s get started…
Step 4: Assemble Your Board of Directors
Unlike for-profit corporations, nonprofit organizations are not owned. Instead, they are governed. Profits made by nonprofits cannot be distributed to individuals; profits must be maintained by the organization to continue carrying out its mission.
The board of directors is the group of people responsible for governing nonprofits. Hand-select each person you would like to participate on the founding board. Each person serving on the board is called a “board member.” The number of board members, duration of their service, minimum age requirement, responsibilities, etc. is determined by the bylaws you will have drafted in Step 3.
It’s easy to ask a person to join the board, but it’s challenging to ask them to leave.
Be very familiar with potential board members’ character, decision-making process, social skills, background, and motivations.
The demographic your nonprofit will serve should be represented on your board. Idle Tuesdays Recording Studio, the charity I founded, serves adult recording artists. Idle Tuesdays’ board currently consists of music producers, vocal producers, recording artists, and other music professionals. They have first-hand knowledge of the music business and Idle Tuesdays benefits because of their experience.
Board members are legally responsible for the organization’s financial well-being.
To maintain state and federal accountability, board members are listed on a number of state and federal forms. For this reason, it’s important each board member understands the organization’s financial standing.
Fundraising is also a significant role for board members. Nonprofits are funded primarily through donations (individual and corporate) and grants. Each board member should also be required to contribute financially. Donating is a way to support your organization’s mission.
If an individual is unwilling to support financially, reconsider inviting them to join the board.
Step 5: Host Your First Board Meeting
After your state has endorsed your Articles of Incorporation (Step 2), you have written the bylaws, and have put together a board of directors, it’s time for your first board meeting.
You should be prepared to discuss and/or take action on the following:
- elect a temporary chairperson to lead the meeting
- elect a temporary secretary to record the minutes (take notes)
- discuss the Articles of Incorporation
- adopt the bylaws (formally accept)
- elect officers (President, Vice President, Secretary, Treasurer)
- discuss the nonprofit’s permanent location
- decide what financial institution you will bank at
Depending on the bylaws, you may need to discuss other points of business at your first meeting. For example, at Idle Tuesdays’ first board meeting, we had a number of program-related issues to discuss. As important as nonprofit programs are, the organization’s business side will need to be taken care of first.
Step 6: Get Your Federal Employer Identification Number (FEIN)
Now that you’ve established a corporation (by having your Articles of Incorporation approved by your state), it’s time to apply for tax exemption. Receiving tax exemption is how a corporation becomes a nonprofit corporation.
The first step in applying for federal tax exemption is obtaining a Federal Employer Identification Number (FEIN).
Your state corporate number (stamped on your Articles of Incorporation by your state) and your FEIN act as your organization’s “social security” numbers. Both are required to operate.
State and federal forms sometimes refer to the Federal Employer Identification Number differently: sometimes it will be written out, other times it will be abbreviate FEIN, and still other times abbreviated simply EIN. It’s also casually referred to as a “tax identification number” as well. So, if you see any of these, it’s referring to the number the federal government provided your organization with.
Unfortunately, many of these steps still require the applicant to snail-mail forms in. But not this one!
Apply for your FEIN by visiting this IRS website. If you visit the site outside their business hours, you’ll see the following:
Don’t worry. You’re at the correct website. Just try again during their business hours. The application will take about 30 minutes to complete and is free to submit.
Here are a few questions (with the answer) you will be asked:
Q: What type of entity are you setting up?
Q: What do you need an EIN?
A: You need a new EIN because you are starting a new business.
Q: Who will be the responsible party?
A: Enter your name
You will be guided through the application process and will receive your EIN right then. Save this number. You’ll need it for the duration of your organization.
Remember: Complete each step, in the correct order, before moving on to the next.
This concludes Steps 4, 5, and 6 of Starting Your Nonprofit. I’ll discuss the next three steps in Part 3.