We\u2019ve all heard of the YMCA, and not just because of the song. Of course, there are plenty of other famous nonprofit organizations (NPOs) – including the Scouts, the Red Cross, and the Salvation Army – that are making a positive, long-lasting impact on the world, one individual at the time.<\/p>\n\n\n\n
If you have a cause you believe in or want to change the world for the better, you might consider starting a nonprofit organization yourself. <\/p>\n\n\n\n
But how do nonprofits work? Should you start one yourself? And what does the process involve? In this article, we\u2019ll explain the benefits of nonprofit organizations and outline the steps you should take if you decide to start one.<\/p>\n\n\n\n
Informally speaking, any group whose mission is to help others could be considered a nonprofit organization. The group\u2019s primary goal should be to serve the community or to promote and work on a social cause. <\/p>\n\n\n\n
Some of the most common NPOs you encounter every day are associations, churches, and clubs. You might have also read about or donated to nonprofit organizations that provide funding for education or humanitarian aid. Many focus on raising funds for research to find a cure for a specific illness.<\/p>\n\n\n\n
There is, of course, a more comprehensive answer to the question: \u201cWhat is a nonprofit organization?\u201d It would be fair to describe an NPO as an organization that receives donations, sponsorships, goods, and services to help with its mission. These are the main sources of income for any nonprofit organization. <\/p>\n\n\n\n
A nonprofit organization\u2019s profits must be immediately applied to pursuing its goal or donated to other related nonprofits. This is a major definition of nonprofit organizations. It is extremely irregular, sometimes even illegal, for the leaders of nonprofit organizations to make a profit from their involvement.<\/p>\n\n\n\n
Many people assume that a nonprofit corporation isn\u2019t allowed to generate any profits whatsoever. That\u2019s not the case. In fact, the main difference between nonprofits and LLCs<\/a> lies in how they use their profits.<\/p>\n\n\n\n LLCs can – and usually do – distribute some or all their profits among owners and shareholders. An NPO can\u2019t do this. Of course, nonprofit employees still earn reasonable salaries if they are hired instead of volunteering, but these salaries do not increase based on the organization\u2019s success. The sole purpose of the money a nonprofit generates is to further the goal and mission and keep the organization running.<\/p>\n\n\n\n Perhaps you\u2019re wondering whether or not you should formalize your group as a charity or nonprofit organization. If that\u2019s the case, you should know there are multiple benefits to turning your group into an NPO. The process itself is not daunting, and if you\u2019re looking to create the change you want to see in the world with your group, it\u2019s well worth the trouble. <\/p>\n\n\n\n Being part of an enthusiastic group of people busting their backs for a cause is amazing, period. However, at some point you\u2019ll need a business address and a bank account. Making your organization last without funding can be challenging, and while there are plenty of benefits of working for nonprofit organizations, not everyone is going to be dedicated enough to stay true in the long term. Getting donors to invest in an unofficial group could be a futile effort, too.<\/p>\n\n\n\n By incorporating your group into a nonprofit organization, you\u2019ll gain the credibility you need to approach donors with the confidence your goal deserves. <\/p>\n\n\n\n Once you turn your group into a nonprofit organization, it will open up many doors leading to public and private grants that could help you pursue your goals. There are many benefits of nonprofit organizations for the welfare of society, so naturally there are plenty of grants available. After all, if you\u2019re registered as a 501(c)(3) nonprofit organization, donations are usually tax-exempt, which will make your group more appealing to donors.<\/p>\n\n\n\n Chasing donors can be a hassle, but it\u2019s likely the best way to keep your organization afloat. However, even if you simply rely on small donations from the general public, you need to make sure you\u2019re adhering to state laws. Some states require that you register as a nonprofit to receive donations from the general public. If not, you could get in serious trouble.<\/p>\n\n\n\n Speaking of trouble, once you\u2019re registered, you\u2019ll only have limited personal liability; it\u2019s one of the advantages of nonprofit organizations. Unlike with non-incorporated groups, if your NPO gets sued or is struggling with debt, your personal assets are protected. <\/p>\n\n\n\n That\u2019s not to say that once you have nonprofit status, you can do whatever you want and not be liable for your actions. There are certain cases in which limited liability can be revoked, such as board members mingling nonprofit and personal funds or engaging in dodgy practices. Still, in case of a dispute, board members are generally protected if they follow the relevant rules and regulations that apply to nonprofits. <\/p>\n\n\n\n Once you decide to incorporate a nonprofit corporation, it\u2019s mandatory by law to have a registered agent. That could be you or one of your team members, but it\u2019s not a good idea; we strongly advise you to hire a professional registered agent<\/a>. <\/p>\n\n\n\n It might seem like an annoying cost you could live without, but there\u2019s a good reason for acquiring these services; you want to have a professional handling your legal paperwork in a proper and timely manner. These services typically cost between $100 and $300 per year, and in some cases NPOs qualify for a discount. For that amount of money, a registered agent is well worth it.<\/p>\n\n\n\n There are, of course, some disadvantages. Consider these carefully to make sure you understand the pros and cons of a nonprofit organization.<\/p>\n\n\n\n Access to grants does not come for free, so you might find yourself in a pay-to-play situation. If you\u2019re looking to establish your group as a nonprofit organization, you\u2019ll need to dedicate some startup funds, as you would with a business.<\/p>\n\n\n\n The first major expense you\u2019ll have to deal with is filing all the paperwork. Forming a statutory nonprofit company requires you to submit documents to your state\u2019s business entity filing office. Some states also require an annual fee as part of the nonprofit\u2019s cost of operation.<\/p>\n\n\n\n After that, you might need some legal assistance to ensure you\u2019re working within the laws of the state in which you\u2019re operating. Of course, if you opt for online legal services<\/a>, these costs will be trivial compared to having an actual lawyer on retainer, but it\u2019s still worth factoring them in when you plan your budget.<\/p>\n\n\n\n Even though it might feel like it, you\u2019re still by no means exempt from your compliance obligations once you establish your NPO. Make sure you check what these are within the nonprofit statute under which you form your nonprofit business. It might require you to draft bylaws or operating agreements, keep records or specific books, or file an annual report.<\/p>\n\n\n\n Keep in mind that every nonprofit is closely regulated by a particular nonprofit statute, so you need to ensure your management team is up to par. This is mandatory if you\u2019d like to retain your nonprofit status and avoid public scrutiny.<\/p>\n\n\n\n This can encompass many things, but primarily it will require you to have a board of directors, which must gather for periodic meetings. You\u2019ll usually need to keep notes of those meetings, organize quora, and much more.<\/p>\n\n\n\nWhat Are the Benefits of a Nonprofit Organization?<\/strong><\/h2>\n\n\n\n
The Credibility You Need<\/strong><\/h4>\n\n\n\n
Access to Funds<\/strong><\/h4>\n\n\n\n
Limited Personal Liability<\/strong><\/h4>\n\n\n\n
Advice from a Professional Registered Agent<\/strong><\/h4>\n\n\n\n
What Are the Disadvantages?<\/strong><\/h2>\n\n\n\n
Inevitable Expenses<\/strong><\/h4>\n\n\n\n
Unavoidable Ongoing Obligations<\/strong><\/h4>\n\n\n\n
Significant Regulations<\/strong><\/h4>\n\n\n\n
Wondering How To Set Up a Nonprofit Organization?<\/strong><\/h2>\n\n\n\n