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Starting a Nonprofit

Every day, individuals are inspired to serve and improve lives in their community by starting a nonprofit organization. The resources on this webpage are designed to provide you with questions to consider before attempting to start a nonprofit, filings you’ll need to complete at the federal, state, and local levels, 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 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 because 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. 

Click here to download a 2-page PDF with the information below.

Additional resource: Stay Exempt: Small to Mid-Size 501(c)(3) Organization Workshop (IRS) - a free 10-part series, available as videos and/or PDF transcripts

First step: Do Your Research and Assess Your Nonprofit Readiness - Is there a demonstrated need in the community for a new nonprofit with this mission? What are the costs to start and maintain the organization? Is this the right solution for our community? Would choosing a fiscal sponsor to "incubate" your idea be more practical, and less expensive (and potentially burdensome), than starting a new charitable 501 (c)(3) organization - either short term or long term?  Here's a video about fiscal sponsorship.

 

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. Follow the steps below: 

1) Name Your Organization - In addition to establishing your brand and how you'll be recognized in your community, this is important when incorporating with the state. Click here to make sure your name is available.

2) Recruit Incorporators and Initial Directors - The incorporator is the person who signs the articles of incorporation for your nonprofit. Directors make up the governing body of your nonprofit corporation and they are charged with steering/setting the direction of the organization. Initial board members and those recruited in the future should reflect the diversity of those the organization plans to serve, as well as provide the different types of expertise needed to effectively govern (for example, finance, fundraising, marketing, etc.). Board members are legally responsible for the organization. Learn more about IRS and Kentucky requirements here.

3) 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. Learn more here.

4) 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. It is important to customize the articles for your organization and make sure you meet both Kentucky and IRS requirements:

5) 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.

6) Establish Initial Governing Documents and Policies - 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.

7) 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. Sample policies are available online, but remember to customize them for your organization. Be sure to record important decisions in the meeting minutes. This initial meeting is also an important opportunity to formally adopt the organization's mission statement and begin planning and implementation of the organization's budget, fundraising, and more.

8) Apply for State Tax Identification Number - Register with the KY Department of Revenue within 30 days of incorporation for applicable tax accounts.

9) 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 foundations. 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.

10) Apply for State Tax Exemptions and Other Business Licenses and Permits - Your nonprofit is automatically exempt from Kentucky corporate income tax when you receive IRS income tax exemption. However, you will still need to apply for purchase exemptions for sales & use tax.

  • KY Sales and Use Tax Purchase Exemption: Submit Form 51A125; Learn more here.
  • Contact your city and/or county government office to learn more about the business licenses required.

11) 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 on the scope and fundraising plans of your organization. Learn more here.

 

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.

 

Additional Resources:

 

This webpage is provided for informational purposes only. Please consult an attorney or tax advisor for specific advice.

 

Much of 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 info@harborcompliance.com.

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