by Dr. Monroe Mann, PhD, Esq, MBA, LLM, ME
Founder & Executive Director, Break Diving, Inc.
Note: although I am a lawyer, the following is not legal advice, but rather, just some helpful tips to point you in the right direction as you get your own 501(c)(3) not-for-profit up and running. Be sure to verify the accuracy of anything you read below before taking action.
Here are some tips I have learned through starting and running this not-for-profit, Break Diving, Inc. I hope it helps you get your own charity off the ground and improving the world!
GETTING TAX-EXEMPT STATUS
- Create a C-Corp–this is not 100% required, but it makes things a lot easier in the long run. But also then purchase some books on how to hold board meetings, and how to ensure that the corporate veil is not pierceable. In other words, take this endeavor seriously: even though you may start out with no money, the surest way to convince people not to donate money is to fail to show that you know what you are doing.
- HAVE A BOARD MEETING EVERY QUARTER, WITH A QUORUM OF MEMBERS, AND WRITE UP THE MINUTES AFTER EACH MEETING, AND PUT THEM IN A BINDER AFTER THE BOARD VOTES TO ACCEPT THEM & AFTER THE SECRETARY SIGNS THEM! Why all caps? Because this is something far too many startup corporations fail to do, and it’s a big big no-no. Also, by being responsible about the meetings, your board of directors will respect you and the organization much more.
- Choose where to create the corporation: We at Break Diving chose Delaware because the requirements are easier to manage, and then created a foreign corporation in New York.
- Make sure that you have the appropriate number of board members, and a very clearly written articles of formation, and bylaws. This is key. Do not just use some articles and bylaws that someone else used for their corporation.
- Choose people to be on your board because they really believe in what you are doing, and not just because they have a fancy resume. You want people who will actually show up to board meetings, and help you out as needed in the interim. Remember: if a quorum of the board does not show up, usually you cannot have a board meeting. That is a huge drag.
- Make sure the bylaws allow for the removal of board members who are not pulling their weight, i.e. not pulling their weight either through non-interest, or non-participation.
- Make sure your mission statement is broad enough to allow your company to grow–once you set your mission statement, it’s a chore to change it with the IRS. Once that mission is set, any activity outside the scope of your original mission statement will be taxable! For an example of a mission statement that allows the corporation considerable flexibility, please check out the Break Diving mission statement at www.BreakDiving.org
- If you operate in another state, be sure to file the appropriate paperwork to become recognized as a foreign corporation in that state. Otherwise you may be considered as operating in violation of the law.
- If you plan to fund-raise considerably in any particular state, make sure that you complete the proper registration forms for that state. Many states allow you to complete the ‘Unified Registration Statement’ and file that same form in multiple states; some don’t even require you to register; others have a separate form. Search and find out!
- Provide an overabundance of information when filing with the IRS for tax exemption–the more you can show that you know what you are doing, the more likely you will (like Break Diving) be approved for tax exemption the first time.
- If you want to get involved politically with your organization (i.e. lobbying for change), or engage in the offering of gambling services (like bingo), or work with other unique aspects of 501(c)(3)s, be sure you complete the appropriate paperwork.
- Once you gain your tax-exempt status, Form 990 must be filled out every year.
- Be sure to always fill out the relevant Form 990 schedules for the not-for-profit as well. In our case, we complete Form 990 EZ, plus Schedules A, C, L, & O.
- If Form 990 is not filed for three consecutive years, your tax-exempt status will be abandoned. Deadline is May of each year, I believe on the 15th.
- You will not receive any ‘filed return’ from the IRS in return, as you often do with your personal income tax returns. So if you don’t hear from the IRS after you submit everything, it means everything is good. Note: I suggest that you get signature receipt, so that there is proof that you sent it and that the IRS received it.
- It is required by law that your Form 990s are publicly available. While not required, to make things easier on you should people want to see your filings, it is recommended that you post your Form 990 and associated Schedules online, on your company website, in PDF format.
- Although the Form 990 and Schedules are not returned to you, you can still request copies via:
- irs.gov by completing Form 4506-A (Request for Copy of Exempt Organization Return)
- guidestar.org (Which usually also will keep a copy on hand)
- Each year, the state forms must also be filed. In our case with Break Diving, we need to complete the Corporate Annual Report for Delaware, and also the NY Char500 Annual Filing for Charitable Organizations. Check with whichever state(s) in which you operate to determine what must be completed in your particular situation.
- Remember: just because you’re a tax-exempt organization, doesn’t mean you don’t have to comply with state laws. Study up and make sure you’re not forgetting anything.
- You can basically raise money in one of two ways: donations and sales of services.
- Sales of services may be easier to begin with, because you will be offering something of value to those buying the service. Donations, of course, may be more difficult because individuals do not yet know that their money donated will be allocated in a responsible manner.
- It is crucial that your company start raising money and selling services as soon as possible. Why? After your 5th year of operation, the IRS requires you to attest that a certain percentage of your gross receipts are from charitable donations and/or sales of mission-related services. So start raising money by doing what you guys do!
- Crowdfunding is a good place to get started, and even if people just donate $1, it’s a good start to get those IRS percentages off to a good start. There are many crowdfunding sites uniquely designed for not-for-profits, and you should investigate which ones suit your organization best.
- Be sure to update your website with ‘recent accomplishments’–this can help with fundraising.
- Start small. Get donations of any size. And keep track of who donates. First, raising the first bit of money is the hardest. Once you start the ball rolling, it will be easier to keep pushing it alone. Second, it doesn’t matter how much someone donates–just that they do. Why? Because if they donated $1 today, maybe they will donate $5 tomorrow, and $50 next month, and $500,000 once they have the fund available. This is why it’s crucial to keep track of who donates (with full contact info), because you absolutely need to: a) send thank you notes! and b) keep in touch and share your accomplishments and encourage future donations!
- I know you think your cause is SO amazing and that people are going to rush to donate money (and hey, I hope they do!), but the truth is, you will probably be in for a rude awakening when you realize that it is still very tough to raise money for a charity, despite the great mission. I suggest you read another set of posts on here, about gaining T.R.U.S.T. that I wrote: T.R.U.S.T.™ – Using Psychology to Raise the Money You Need for Your Project and then continue with: T.R.U.S.T. – Chapter 1: Why Finding Potential Investors is So Difficult
- You can still move towards fulfilling your mission even without money.
- Do NOT use lack of money as an excuse for not helping others. Even if it takes you a couple years (or longer) to really get up and running, that is acceptable! Building a new company, and particularly a not-for-profit takes time. I know you may want to help the world and its millions of inhabitants, and maybe now you can’t, but that doesn’t mean you can’t help your community, and a few of its inhabitants, right?
- Sign up at techsoup.org for cool discounts and whatnot for not-for-profits
- Sign up at volunteermatch.org and post ‘help wanted’ ads on there. It’s free!
- Make sure you set up a good website, and one that is mobile first in design
- Google offers a $120,000/year Google Adwords grant to qualified not-for-profits. Sign up as soon as you get your exempt letter. And then, learn how to use google adwords. It’s great, because with the grant, you can experiment without wasting your own hard cash. You can use the grant to learn how adwords really works without worrying, “Oh my gosh, I just lost another $50!”
- No matter how tough the going gets, keep going. I promise that if others see that YOU are not giving up, it will inspire others to rise to the cause to help you.
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