Founding a nonprofit is a great way to give back to your community, champion a cause you are passionate about, and help those in need. Starting a nonprofit, however, requires more than just a good idea and a desire to help others. There are several legal considerations that must be taken into account to ensure your nonprofit complies with all relevant laws and regulations.
One of the most critical legal considerations for starting a nonprofit is whether you should incorporate it as a nonprofit corporation. Incorporating your nonprofit provides several benefits, such as limiting the liability of the organization’s members and board members, allowing for tax-exempt status, and providing additional credibility to potential donors and funders. Additionally, incorporating your nonprofit can make it easier to apply for grants and other funding opportunities.
Another important legal consideration for starting a nonprofit is obtaining tax-exempt status from the IRS. To obtain tax-exempt status, your nonprofit must file Form 1023 or Form 1023-EZ with the IRS and demonstrate that it meets the requirements for tax exemption as outlined in the Internal Revenue Code. This process can be complex and time-consuming, so it is important to seek the guidance of a qualified tax professional or attorney to ensure that your nonprofit’s application is prepared correctly and submitted on time.
Once your nonprofit has obtained tax-exempt status, there are several ongoing compliance requirements that must be met to maintain that status. For example, your nonprofit must file an annual Form 990 or Form 990-EZ with the IRS to report its financial activities and ensure that it is continuing to operate in a manner consistent with its tax-exempt status. Failing to comply with these ongoing requirements can result in losing tax-exempt status, which can have significant financial and operational consequences for your nonprofit.
In addition to complying with tax and regulatory requirements, starting a nonprofit also requires careful consideration of the legal relationships between the organization, its members, and its board of directors. For example, nonprofit board members have a fiduciary duty to act in the best interests of the organization and its beneficiaries. This means that they must exercise due care and diligence in carrying out their responsibilities, avoid conflicts of interest, and act in a manner consistent with the nonprofit’s mission and values.
Overall, starting a nonprofit requires careful consideration of legal requirements and compliance with applicable laws and regulations. To ensure that your nonprofit is set up for success, it is important to seek the guidance of qualified professionals, such as attorneys and tax professionals, who can help you navigate the legal considerations of starting and running a nonprofit. With proper planning and ongoing compliance, your nonprofit can make a positive impact in your community for years to come.