Last updated: April 2007

What are the significant differences between a not for profit organization and a for profit business?
What are the legal steps to starting a not for profit organization versus a for profit company?
What are some wrong reasons to start a not for profit organization?
Should I start a not for profit organization? Is it necessary?
What documents do I need to prepare for the IRS as a not for profit organization?
How can I develop a clear and concise description of our operations, or a business plan?
I want to establish a not for profit organization, where do I go from here?

What are the significant differences between a not for profit organization and a for profit business?

What are the legal steps to starting a not for profit organization versus a for profit company?

What are some wrong reasons to start a not for profit organization?

If any of these are your reasons, you may want to think about starting a for profit business:

• To have a paying job
• To address your own problems rather than a true public interest
• To do a short term project like paint a mural on a building
• To solve a short term problem
• To hold a block party
• To provide financial support to a needy individual or family
• To do things your way and not deal with government bureaucracy or “a boss”
• To get large sums of money that you think funders are waiting to give you   

Should I start a not for profit organization? Is it necessary?

It's a great deal of work. If another organization already addresses the issue, seriously think about working with that organization. Funding is scarce and you may be more successful working with an existing organization, becoming a project or a program, rather than starting a new organization and competing for funding. Have you spoken with the staff of the existing organization? Can you work with them? If you choose to start a new organization, make sure you can distinguish your organization from the other established organizations.

What documents do I need to prepare for the IRS as a not for profit organization?

501(c)(3) not for profit organizations must be organized and operated for an exempt purpose, as established by the Internal Revenue Code. For more information about what constitutes an "exempt purpose," click here. The IRS looks at the organization's legal documents - it's Articles of Incorporation and bylaws - to verify that it is organized for an exempt purpose. The IRS also looks at the operations of the group to see if it will be operated for an exempt purpose. The group should have a clear and concise description of its operations and a thorough business plan developed before preparing any legal documents. Once project ideas and a business plan are fully developed, the group can address the legal issues.

How can I develop a clear and concise description of our operations, or a business plan?

You need to think about what the organization will be doing, how it will function and be able to explain it. Consider the following questions and keep in mind that your passion about the issue is not enough. The organization must be able to explain why its programs are needed.

Find data to support the organization's position. Start researching the issues and defining what the organization will do. Read everything you can. Learn everything  you can. Learn what others have tried. Learn what works and what doesn't. Talk to people who know about the subject; get other people's opinions. Learn how a not for profit operates.

The information you gather should answer the following:

• Is there an identifiable documented need, cause, issue or problem the organization will address? If so, how will the program(s) work to reduce the problem? 
• What is the organization's goal? How will it accomplish its goal? What steps will be taken to achieve the goal?
• What finances will be needed to get started? 
• How much money will the organization need to stay in business?  
• Will the organization charge for its services? If so, how much? Is it a charge that anyone will be able to afford? 
• Are there funders providing money for your cause?
• Who will help? Are there other people who support your cause and who are willing to volunteer and commit their time to see the organization succeed? There must be at least three active participants on the board of directors. Do not identify people to be on the board if they are not willing to work hard and commit their time to the organization. 
• Do you and the people on your board have the skills necessary to establish and run a not for profit or do you have access to people who will work with the organization who have fundraising experience? accounting experience? administrative experience? specific program expertise? Remember: the people on the board should not be the same people who work day-to-day for the organization. The people who want to help need to understand what their involvement will be: employees or directors on the board.

I want to establish a not for profit organization, where do I go from here?

When you are able to answer each of these questions and have research to support your answers, you need to develop a business plan. The business plan needs to address the operations of the organization and include a projected budget for the first two years of the organization. When the organization has a thorough, well thought-out business plan, it is ready to proceed with the legal process of establishing a not for profit corporation and obtaining recognition of income tax exemption from the IRS. For more information about this, see How Do I Create a Tax Exempt Organization?

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