Charities are formed as nonprofit organizations to serve the needs of struggling people, the environment or entire societies. The process of forming a nonprofit differs from forming a for-profit business in several notable ways, especially in the area of financing and tax registration. Understanding the process and how it differs from starting different types of organizations is the first step in creating a new charity for the needy.
Nonprofit Business Plan
Business planning is the first step in forming a nonprofit organization, although the details of the written plan will differ from those of for-profit businesses. Nonprofit business plans detail how a charity will be organized, how it will generate funding and who will sit on its board, in addition to laying out the vision, mission and planned services of the organization. A detailed plan is crucial in the grant writing process, as it proves to potential grantors that you have a sustainable plan for generating income and carrying out meaningful service activities.
Recruit a board of directors to oversee major strategic decisions of your charity. Choose the most experienced, connected and resourceful people you can find for these positions, including community leaders, respected businesspeople and trusted mentors. Draft articles of incorporation to detail the formal structure of the company. Nonprofit articles of incorporation set forth the organization's name, formation date, members and the type of organization, whether religious, public benefit or mutual benefit. Articles also include the organization's main address and information about its board of directors.
Seek startup funding through government grants, foundation grants and institutional donors. Find grant programs that award funds to organizations in your specific niche -- those whose areas of interest most closely match your own. Include your nonprofit business plan, professional biographies of your board of directors, and detailed statistics proving the need that your charity will serve. Draw up individual grant proposals to submit to each granting organization, and submit as many proposals as possible.
Use IRS Form 1023, "Application for Recognition of Exemption," to apply for tax exemption under Section 501(c)(3) of the Internal Revenue Code. With this final piece completed, your charity can now collect as much income as possible without paying income tax, allowing you to channel as much money as possible directly into programs and services for people in need.
Complete an application to legally establish your organization with your state's secretary of state, or the equivalent state agency handling corporate filings. Florida requires filing with the Florida Department of Revenue, for example, while the District of Columbia requires filing with the D.C. Office of Tax and Revenue. The application will require basic information and a filing fee, and it must be completed after you have applied for tax exemption with the IRS.