Every day, individuals are inspired to serve and improve lives in their community by starting a nonprofit organization. The resources on this webpage are desinged to provide you with questions consider before attempting to start a nonprofit, filings you’ll need to complete at the federal and state level, and the standard policies and procedures that a new nonprofit will want to have in place to maintain compliance with state and federal laws.
While nonprofits will vary in mission, all share a common focus on helping others and benefiting their community. However, it's important to realize that starting a nonprofit requires resources of time and money. It's also important to note that simply becuase an individual is the founder of a nonprofit does not mean that person (or any persons) "own" the nonprofit - nonprofits do not have owners. In addition, you want to be sure you have identified an unmet need in your community and know that there are not any existing organizations serving your cause. If another organization exists, consider working together, as that may be a better way to make an impact in your community and make the most of existing resources.
KNN does not provide one-on-one assistance to start (or operate) a nonprofit. Instead, we freely share lots of information here on our website from various partners and encourage you to consult with local expertise (either an attorney, accountant, or expert very familiar with tax-exempt law and how charitable organizations operate in your state) to ensure that the new nonprofit you form complies with state and local requirements, as well as federal laws. We encourage you to read all of the information below before making a decision to start a nonprofit. We also encourage you to consider whether identifying a fiscal sponsor to "incubate" your nonprofit idea would be more practical, and less expensive, than starting a new organization. Here's a video about fiscal sponsorship.
First step: Do Your Research
Next steps: If you've decided you will move forward to start a nonprofit, you will want to incorporate and apply for 501(c) status with the Internal Revenue Service, as these are important steps to fully achieve your goal. As an incorporated nonprofit, you limit the liability of your organization’s officers and directors. When you achieve 501(c)(3) status, you will be able to apply for grants, provide a tax deduction to your donors for their contributions (while anyone can make a contribution to your efforts, for the contribution to be tax-deductible for the donor, you will need to apply for and receive 501( c ) (3) tax-exempt status from the Internal Revenue Service), and be exempt from federal corporate income tax. Most importantly, you will gain credibility and legitimacy for your cause, instilling the public with confidence in your organization.
- Name Your Organization - In addition to establishing your brand, this is important when incorporating with the state. The legal name of your nonprofit corporation may not conflict with any other organization registered in the state. Make sure it is available and meets state requirements.
- Recruit Incorporators and Initial Directors - The incorporator is the person who signs the Articles of Incorporation for your nonprofit. You will need at least one, but may have more than one. Directors make up the governing body of your nonprofit corporation. You’ll want to identify at least three to meet IRS and Kentucky requirements. You will also want to be aware of any Kentucky requirements.
- Appoint a Registered Agent - A registered agent is responsible for receiving legal notices on behalf of your organization. The registered agent is appointed as part of the process of incorporation by listing the name and address as required by the state. The appointed registered agent must be physically located in the state and maintain an office that is open during regular business hours. Click to learn more about a registered agent service.
- Prepare and File Articles of Incorporation - Your nonprofit’s articles of incorporation officially mark the creation of your organization. They document where and when the organization was formed and capture other information necessary to verify its existence. While requirements for language vary from state to state, there are some basic provisions that the IRS will look for when you apply for 501(c)(3) exemption. It is important to customize the articles for your organization and make sure you meet both Kentucky and IRS requirements.
- Obtain an Employer Identification Number (EIN) - This unique, nine-digit number is assigned by the IRS to identify your nonprofit. All types of nonprofits need an EIN, not only those that hire employees. Your EIN will be used to open a bank account, apply for 501(c) status, and submit 990 returns to the IRS.
- Establish Initial Governing Documents and Policies - Your bylaws are the governing document for your nonprofit. They serve as your organization’s operating manual and should be consistent with your articles of incorporation and the law. You’ll also want to create and adopt a conflict of interest policy. A conflict of interest is when someone in a key position in your nonprofit has competing interests and is making choices that could benefit themselves to the harm of the organization. If a conflict of interest arises, it should be disclosed immediately. Your application to the IRS for 501(c)(3) exemption will require that both the bylaws and conflict of interest policy are approved and adopted. When your board of directors meets for the first time, you will need to review, approve, and adopt both documents.
- Hold an Organizational Meeting of the Board of Directors - At the initial organizational meeting of your board of directors, you will approve the bylaws, adopt the conflict of interest policy, elect directors, appoint officers, and approve resolutions such as opening the organization’s bank account. Be sure to record such important decisions in the meeting minutes.
- Apply for 501(c) Tax Exemption - Applying for 501(c) tax exemption can feel like the most daunting step in bringing your nonprofit dream into reality, but it comes with many benefits. 501(c) is the chapter of the Internal Revenue Code (IRC) that regulates nonprofit organizations. 501(c)(3) nonprofits include charities and foundation. These nonprofits apply using Form 1023 or Form 1023-EZ. Review the criteria for each application and make sure you meet the eligibility requirements set out by the IRS. Other types of nonprofits apply using Form 1024. After reviewing and approving your application, the IRS will return a “determination letter” officially recognizing your exemption. A well-prepared application takes time, over 100 hours by IRS estimates, so prepare to invest the time or find support.
- Register for Charitable Solicitation (Fundraising) - Kentucky law requires any nonprofit soliciting donations to register with the Kentucky Office of the Attorney General an annual basis. This means registering in Kentucky prior to soliciting any resident of that state. Registering in Kentucky is essential, but you may also need to register in other states depending of the scope of your organization.
- State Tax Identification Numbers/Accounts and Exemptions and Other Business Licenses and Permits - Different states have different requirements and processes for issuing tax IDs or recognizing a nonprofit’s tax-exempt status. Become familiar with those requirements. Your nonprofit corporation may also need to secure other licenses and permits at the local, state, and federal levels depending on its activities.
Maintain your good standing: Once you've received your tax-exempt status, it's important to maintain ongoing compliance with all local, state, and federal government agencies.
- KNN's Principles & Practices for Nonprofit Excellence in Kentucky can help - click here to download the Guide.
- Fundraising Registration - click here to learn more.
- Ongoing Nonprofit Compliance - click here to learn more.
- IRS Information for New, Small and Mid-Size 501 (c) 3 Nonprofits
- Step-by-Step Guide for Forming your Kentucky Nonprofit from our partner, Harbor Compliance
- Nonprofit Startup Guide from our partner, Harbor Compliance
- 10-Day Nonprofit Startup Bootcamp
- The ABC’s of Forming Your 501(c)(3)
- Case Study: Tax Exempt in 14 Days
- KNN corporate members providing assistance with incorporation: attorneys and CPA's/tax advisors
- Internal Revenue Service
- IRS' Life Cycle of a Public Charity
- How to Start a Nonprofit, from our partner, The National Council of Nonprofits
About the Author
This content is provided by Harbor Compliance, a valued partner of Kentucky Nonprofit Network and provider of compliance solutions for nonprofits. For more information, contact 888-998-5895 or email@example.com.
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