NPO Management

How to Create a Nonprofit Organization in the United States

March 22, 2022

Do you have a particular cause that’s close to your heart? Whether it's supporting students to reach their full potential, providing support for the underserved, or caring for neglected animals, you’ll be more effective if you have your own NPO (non-profit organization). Ready to jump in? Let’s get started!

Follow our short guide to get started with the creation of your Nonprofit Organization in the United States

Definition of an NPO

As you may have guessed from the name, nonprofits carry out their activities without the objective of generating profits. Rather than focusing on revenue, these organizations pursue an altruistic goal in one or more given fields (social, cultural, environmental etc.). NPOs have their own assets, rights, and obligations distinct from those of their members. 

Most NPOs in the US fall into the category of 501(c)(3) organizations. Examples of 501(c)(3)’s are nonprofits that work towards the following causes:

  • Human Rights 
  • Charitable work 
  • Education
  • Religion
  • Public safety and health
  • Scientific research
  • The arts

Other types of tax-exempt organizations include:

  • 501(c)(7): social/recreational club
  • 501(c)(6): trade association/chamber of commerce
  • 501(c)(5): agricultural/horticultural org
  • 501(c)(4): social welfare groups

Creating your NPO: Laying the Foundation

Before launching your organization, it's important to build a strong foundation in order to maximize impact. Ask yourself what the purpose of your organization will be and what population you will serve. 

Chances are, there are probably other NPOs that already operate in a similar capacity to your organization. This can make it challenging to differentiate your organization and, crucially, to raise funds. Try to identify a specific challenge you feel is unaddressed in your field or identify a new solution that hasn’t been tried before. This will help your organization stand out and hopefully bring greater care and attention to your cause. 

For example, there is probably at least one organization combating food insecurity in your area. Creating another food bank or soup kitchen could be a challenge if there are already established organizations providing this service. However, your organization can still stand out in terms of the solution it offers. Perhaps your organization will be the first to work with local farmers to provide free meals and combat food waste. Maybe you will focus specifically on people with limited means of transportation and focus on delivering meals rather than collecting food. While the problems we face are clear, the solutions often are not. Don’t be afraid to try something new or innovative to assist in your mission. 

Next, start to compile a list of potential directors. Many states require a list of directors to incorporate. Regardless of whether or not your state requires you to list a board of directors, it’s still a good idea to put together a list of people who have connections to the community/cause you wish to serve, people with managerial experience, and people who could help you secure donations and grants. 

Finally, you must create a set of bylaws for your organization. Tax free organizations in the US are required to have governing bylaws and report changes to these laws in order to ensure continued compliance with both IRS regulations and the organization’s mission. IRS Publication 557 contains a detailed guide to drafting bylaws. 

Naming your Nonprofit Organization

Once you’ve identified your mission and target population, the next step is to name your organization. Think of the nonprofit world like a library. While we’ve all been told not to judge a book by its cover, most people are still more likely to choose something with a catchy title or well-designed cover than a plain paperback. Similarly, there are over 1.5 million nonprofit organizations in the United States. If you want your organization to stand out then a clear, concise, and catchy name is a must. 

Each State has its own specific rules about naming a nonprofit. Make sure to double check the regulations in your state before investing too much time into the naming process. You should select a name that conveys your mission, sounds unique and, optimally, also has an available URL. 

Incorporating your Nonprofit Organization

You’ve defined your mission, contacted directors, drafted bylaws and, most importantly, chosen a name. Now comes the fun part– incorporating your organization :) 

You will have to file articles of incorporation with your state’s corporate filing office. If possible, this will also be the state in which your organization is headquartered and conducts most of its activities. 

This is also a great time to apply for a federal employer identification number (EIN). An EIN allows your organization to hire and pay employees, open business bank accounts, and allows the IRS to track your organization’s activity. You can learn more about how to apply for an EIN on the IRS website. 

Filing for Tax-Exempt Status

After you’ve incorporated your organization and gotten an EIN, you can apply for tax-exempt status from the IRS. Depending on the size of your organization, you will do this by filling out either form 1023 or 1023-EZ. Form 1023 applies to larger organizations and requires more information, while 1023-EZ is a condensed form for smaller organizations. To qualify for the EZ form, your organization must have less than a quarter-million dollars in assets and less than fifty-thousand dollars in gross annual receipts. 

When filing for tax-exempt status, the IRS requires the following information:

  • A statement of your organization’s purpose— scientific, religious, educational etc. 
  • A conflict of interest clause
  • A dissolution clause
  • A copy of your articles of incorporation and bylaws
  • Description of the organization’s activities
  • A balance sheet of expenses and revenues

It can take up to 6 months to hear back from the IRS. It’s better to take the time to properly assemble and submit your documentation rather than wait 6 months only to find out your application is incomplete. It may be helpful to hire a lawyer or consult an online resource such as Legal Zoom or NOLO

You’ve been approved— now what?

Congratulations! You now have a fully incorporated and tax free organization. Although you don’t have to renew your 501c(3) status, you will need to demonstrate your organization’s compliance with government regulations and commitment to its mission. Most of the time, this means filing Form 990 with the IRS. Form 990 shows your activity, key staff and board members, and the finances of your organization. 

Similar to any for-profit corporation, keeping detailed records of salaries, receipts, expenses, and assets is essential both for personal and public records. Be sure to check the financial reporting requirements for your state as they vary across the country.  

Next step: collecting donations!