Before You Start a Nonprofit

Nonprofits are SCANPO’s heart and soul. We love them. We serve them. And we want them to be vital, healthy and successful, which is why we want to make sure people who are interested in entering the nonprofit universe know what they’re getting in to. Nonprofits are not for everyone–they require enormous resources of time, talent and treasure. And often, duplication of services in a community can dilute the resources and impact of existing nonprofits, putting their viability, and those they serve, at risk.

So, before you jump in to the nonprofit arena, please consider these suggestions:

Five Alternatives to Starting a Nonprofit

  1. Make a list of nonprofits serving a similar or related mission and already active in your area. Consider volunteering, even for a day, to understand their work. Perhaps you can achieve your personal vision by joining their efforts as a board member or even applying to work as staff.
  2. Identify the three nonprofits most compatible with your ideas and meet them to explore creating a special project or initiative – and negotiate your involvement.
  3. Explore the national organizations working in the area of your interest and see if a local chapter is needed in your geographic area.
  4. If your effort will be quite local and small, consider forming an unincorporated association or club – have meetings and activities but skip the reporting requirements (an option for groups with an annual budget of under $25,000).
  5. If you are considering creation of a group to finance activities or needs of others (scholarships, family emergency funds for a specific population, etc.), explore creating a donor-advised fund sponsored by a community foundation or other organization.

Alternatives to Forming a Charitable Nonprofit – Takagi, Gene and Emily Chan. (2009) Business Law Today. Vol.18. No. 6.

What are the Advantages and Disadvantages to forming a nonprofit?(GrantSpace)

Important Considerations for Nonprofits When Applying for 501(c)3 Status (TechSoup Blog)

Starting A New Nonprofit:

  1. Clarify in writing your mission, exactly whom you will serve and the greater community benefit to be achieved.
  2. Find out what other groups are already doing in related areas. Work with them if you possibly can rather than creating a new organization.
    • You may find it difficult to garner support or raise funds if you duplicate or significantly overlap the goals or services of existing organizations.
  3. Establish a board of directors of at least 5-7 people.
  4. Do your and homework about creating and running a nonprofit.
  5. Define your organization’s purpose and create your bylaws.
    • Reviewing bylaws of several existing organizations may be helpful, but remember that organizations’ structures and purposes vary. What may be appropriate for one organization might not be for yours.
  6. Incorporate in South Carolina by filing Articles of Incorporation with the Secretary of State.
    • Call 803/734-2158 for forms and fee information. The fee to incorporate as a nonprofit corporation is $25.
  7. Get a Federal Employer Tax Identification Number even if you do not have employees. The number is used by the IRS to track reports and your 1023 tax exempt application.
    • Go to www.irs.ustreas.gov, or call: 800/829-3676 to get it by mail or go to your local IRS office.
  8. Apply for tax exemption as a 501(c)(3) nonprofit. This is needed before you can receive grants or tax-deductible contributions.
    • Call the IRS (877/829-5500, 800/829- 3676 or 800/829-1040) for Form 1023 and the packet that goes with it. You can also get the forms on the IRS’s web site at www.irs.ustreas.gov. The process takes 3-24 months. It is recommended that a lawyer and/or CPA who are knowledgeable about nonprofit tax law review your bylaws and application for tax-exemption before final submission. You might ask established nonprofits in your area for their recommendations or call SCANPO for referrals.
  9. Certain retail sales by nonprofits are exempt from sales tax. Some (but very few) items purchased by nonprofits are also exempt, such as food for feeding the homeless. Once you receive your tax exempt status from the IRS, then apply to the S.C. Department of Revenue for exemption from state sales tax for items you are going to sell.
    • Call the S.C. Department of Revenue at 803/898 5788 to request application #ST387 and to get more information. You can also get the forms on the Internet at www.dor.state.sc.us.
  10. Apply for local property tax exemption on real property or vehicles by calling 803/898-5473 at the S.C. Department of Revenue. Should your nonprofit qualify for an exemption from property tax your local county tax office will be notified.
  11. As you proceed, be sure to check with an attorney or CPA who is knowledgeable about nonprofit accounting about other needed financial documents and filings.
  12. If you plan to solicit contributions you must file a registration statement each year with the Secretary of State.
    • It costs $50 annually to register. If you raise more than $20,000 or receive contributions from 10 or more people you must register. You also have to file a financial report with the Secretary of State within four and one-half months after the close of your fiscal year.