Want to Start a Missouri Nonprofit? Get Your Idea Going in 7 StepsDavid Cawthon
You have an idea that will make the world a better place, and nonprofit organizations are where ideas like yours come to fruition. You want to start a nonprofit but don’t know where to begin.
Start with Stephanie Strickland, who has plenty of nonprofit expertise. She is a staff attorney for Legal Services of Eastern Missouri’s Microenterprise-Community Economic Development Program and has seven steps you can take to make your nonprofit dream a reality.
What is a nonprofit, anyway?
We know nonprofits solve humanitarian or societal problems, but we may be a little fuzzy about how they work. Nonprofits typically serve a community in a religious, scientific, educational or charitable capacity. They are legally defined by the IRS and by the states where they are incorporated.
1. Know what type of nonprofit you want to start
The most important thing to know about a nonprofit is how they are structured, Stephanie says. The founder does not “own” the nonprofit as you would a for-profit business. Governing structures vary, but nonprofits often are led by a board of directors that are originally defined by the founder. While the founder can be a board member, the board does not serve the founder’s interests but does what’s best for the organization.
“You have to be sure that your goals are in line with the nonprofit’s purpose,” Stephanie says. “I’ve heard nonprofit ideas that are really better for a business.”
You’ll need to determine if your nonprofit is a public benefit corporation or a mutual benefit corporation. A public benefit corporation is a nonprofit charity, which is run by a board of directors. A mutual benefit corporation has members who also have governing authority. These are typically unions, chambers of commerce or homeowner’s associations. Only public benefit corporations can be tax exempt. Mutual benefit corporations must define what constitutes a member, the structure of membership dues and the role members play in governance.
“It’s not enough that you will be a good organization in your community,” Stephanie says. “You must pass legal requirements.”
2. Do your research
Just as an entrepreneur would conduct research when considering a business idea, so should you before going deep in the many filings required by the IRS and your state to start your nonprofit. To determine if an idea is valid, you should consider:
Is the need really there? A needs assessment will tell you if there is a local or national population that will benefit from your nonprofit idea. It will also help you better define the population you want to serve. Who is your “competition”? You will want to identify if other organizations are already providing similar programs.
Let’s say you want to improve nutrition for underserved children, ages 3-12 in the St. Louis area. Are other local organizations providing similar services? If they are, that doesn’t mean your idea is not valid, but you will likely compete for funding.
More steps below …
3. Begin writing your business plan
Just as with a for-profit business, you need to write a business plan, although it will be a little different from a plan for a for-profit business. You’ll want to identify who will benefit from your organization’s work (in the example above, it is children in St. Louis who live in areas with a scarcity of fresh produce and other nutritious food) and how you will solve the challenge, whether it’s through education, urban gardens, farmer’s markets, etc.
You’ll also want to consider funding for your nonprofit, which typically comes from individual or corporate donors and grants. Your business plan will include some specifics about funding sources and alternatives if your main source of funding falls through. Many for-profit plans include an exit strategy for the founder. That’s important for a nonprofit, too, because an organization can exist for a specific period of time or in perpetuity.
The exit strategy brings up another important difference between nonprofits and for-profit businesses, Stephanie says. If a nonprofit organization dissolves, its assets must be dispersed to another nonprofit. Neither the founder, board members, or their heirs are entitled to the assets, as they might in a for-profit business. If you haven’t figured it out by now, the primary purpose of a nonprofit is not to make money.
“People ask me if an organization can be a nonprofit and a for-profit business at the same time,” Stephanie says. “The answer is no.”
As mentioned earlier, you can’t declare yourself a tax-exempt nonprofit. That will require filing specific documents with the Internal Revenue Service to determine whether your organization will get 501c3 status, which is the IRS definition for charitable nonprofits.
Is all this sounding complicated? The good news is that there are resources and help to gather this research, and guidance to pull it together. The Kansas City Public Library, Mid-Continent Public Library, Daniel Boone Regional Library, St. Louis Public Library and many others across the state have resources to research local and national nonprofits and foundations. You can find additional guidance through resources at UMKC’s Midwest Center for Nonprofit Leadership or Nonprofit Connect. In most years, Global Entrepreneurship Week-KC offers sessions with experienced nonprofit leaders.
MOSourceLink can show you the next steps (for free!) to start your nonprofit organization and the organizations that can help. Call us at 866-870-6500 to get started or tell us what you need here.
4. Let the filing commence
Nonprofits usually require filing more paperwork than their for-profit counterparts. The first step is filing your articles of incorporation with your secretary of state’s office. Like most of these filings, it requires a fee and can be done online. You can use a search feature on the Missouri Secretary of State’s website to make sure the name you’ve selected for your organization isn’t already taken. A national nonprofit must file in every state it plans to solicit funds. Stephanie suggests contacting an attorney or the attorney general’s office in each state to determine their specific filings and requirements.
Once your organization is incorporated in your state, it’s time to file for tax exempt status with the IRS if you are a public benefit corporation. Just as with the articles of incorporation, you can do this filing online for a small fee. As part of determining your tax status, you will also need to obtain an Employer Identification Number (EIN) for tax identification. This is one of the easiest things your organization will do, Stephanie says, involving a simple form and a small fee.
“Some companies want you to pay them to obtain an EIN,” Stephanie says. “Please don’t do that. They are easy to get.”
5. Write your bylaws
A nonprofit must develop bylaws to clarify governance. Whether its governed by a board or membership, bylaws will explain how your organization is run. If the governing body is a board of directors, it will explain the size of the board, requirements of the directors, how often they will meet, etc.
The bylaws will spell out potential conflicts of interest. Using the bylaws for guidance, the board must discuss any potential conflict in its board meeting, declare why the conflict is in the best interest of the organization and reflect that discussion in the board minutes.
6. Identify Your Board
Your board will be there to help make decisions and guide the organization. Missouri requires a minimum of three board members, but Legal Services of Eastern Missouri recommends five to seven, Stephanie says. The added members create opportunities for diversity and provide well-rounded expertise. The bylaws must outline the number of directors on the board, the length of their service and how new board members will be appointed or elected.
Many boards include professionals, such as accountants or attorneys, to have their expertise available. Others may include subject-matter experts relevant to the board’s mission, such as pediatricians for a nonprofit advocating for children’s health. These professionals can’t serve in an official capacity, but they can be a valuable voice.
“You want your board made up of people who are committed to your organization’s stated purpose,” Stephanie says. “They need to dedicate the time you need to establish your organization. It’s important to be specific about your expectations with board members.”
7. Prepare for compliance
As part of your nonprofit’s launch, you will be reaching out to potential funding sources through donors, corporations and grants. Applying for grants and corporate funding typically requires information from your business plan and bylaws.
Once your organization is working toward its mission, it’s time to think about compliance. Remember earlier in this article we mentioned nonprofits have more filings and scrutiny than their for-profit counterparts? That requires compliance with state and IRS regulations, along with grant reports to show that funding has generated activity and to show results. Getting into specifics about compliance could be its own article, but now you have the basics to launch a nonprofit organization from your idea.