How to set up a non-profit pole-based organization

Starting a nonprofit company/organization/entity/business (all used interchangeably in this resource) is similar to setting up a for-profit company with some key differences. The information below is on the steps needed to set up a non-profit pole-based company in the US.

Making sure you qualify as a non-profit business

All businesses—for profit or non-profit—start in the same way: figuring out what you’re doing and why you’re doing it. Begin this conversation with yourself and your trusted support system such as a spouse or friends, formally or informally answering those questions. You can use a formal process like a SWOT analysis or just hash it out. Maybe you want to create a formal business plan, or talk to some investors  and maybe you don’t want to talk to investors. Presuming you’ve done some level of thinking and researching, these are the next steps you’ll need to become an entrepreneur and officially start your business.

If your intention is to be a non-profit business, you must also confirm that your business idea will qualify as a non-profit.

Ask yourself the following questions about your business:

1. Will it serve a charitable, religious, educational, scientific, or literary purpose?
2. Will it participate in political campaigns?
3. Will it distribute their assets for personal gain or benefit?

The answers to these questions should be, “yes” to number one and “no” to both questions two and three.

Then, you need to confirm which type of non-profit designation you would qualify for.  There are several specific types of non-profits that the IRS recognizes:

• Federal Credit Unions (501(c)(1))
• To hold titles for exempt organizations (501(c)(2))
• Charitable, Religious, Educational, Scientific, and Literary Organizations (includes foundations who fundraise for other organizations) (501(c)(3))
• Social Welfare Organizations and Social Advocacy Groups (often includes political lobbying) (501(c)(4))
• Labor, Agricultural, and Horticultural Organizations (501(c)(5))
• Trade or Professional Association (501(c)(6))
• Social or Recreational Club (501(c)(7))
• Fraternal Societies (501(c)(8))
• Employee Beneficiary Association (501(c)(9))
• Domestic Fraternal Societies and Associations (501(c)(10))
• Teacher’s Retirement Fund Associations (501(c)(11))
• Cemetery Companies (501(c)(13))
• State Chartered Credit Union and Mutual Reserve Fund (501(c)(14))

The most common type of non-profit is a 501( c) (3). The IPIA as a trade or professional organization is a 501(c ) (6). Determine which type you are so that you can file the correct paperwork.

Make it official: register your non-profit business

Step 1: Typically, a non-profit company is structured as a corporation and not an LLC. Read more about business structures here. A non-profit will also need an employee identification or EIN number also known as a Federal Tax ID or Federal Tax Identification Number. You get an EIN number by filing paperwork with the Internal Revenue Service (IRS). Get this for free here.

Step 2: You will also need to register your business with your state and file articles of incorporation. You can file this directly through your state or use a service such as Incorporate.com to help you file this paperwork for a fee.

Step 3: Once your non-profit entity is legally registered at both the federal and the state level, you are still not a non-profit. You must file additional paperwork based on the type of 501 (c ) non-profit you intend to be. A 501 (c ) (3) is the easiest and most straight-forward to file. Find that form here. The rest of the types of 501 (c) organizations require additional paperwork and a longer form which can be found here. There are fees associated with submitting this form. Find the schedule of fees here.  A 501 (c ) (3) as of 2020 has a $275 filing fee. All others have a $600 filing fee.

Once you submit your forms to the IRS, you wait. It can take six months or more to confirm non-profit status.

While you’re waiting for non-profit status to be confirmed

Until you have officially been granted non-profit status, you can continue to work on your business. You’ll have all the same concerns as a for-profit business such as marketing your business, finding the correct insurance, potentially hiring employees or other staff members while additionally, you’ll likely need to set up a board of directors.

A board of directors, or simply a board, is the governing body of a non-profit.

There are typically two types of boards, a working board whereas board members are expected to do work on managing the business, and a governing board whereas board members are expected to provide high level strategy, oversight and accountability. Non-profit boards are typically volunteer only but may provide a stipend for things like traveling to a board meeting or other business-related expenses. If you or a paid staff is working in the non-profit, then you likely will want a governing board. If instead, there is no staff and you are only working a portion of your time on your non-profit, then you are likely to need a working board.

Board are governed by rules called bylaws which function as the operating manual for your non-profit. There are many samples of board bylaws available on the internet. Review several, including this one, and craft the rules that make the most sense for your organization. Once you have created your bylaws, make sure there is an article (a section) of the bylaws that allows for amendments and the process to change the bylaws. Your organization may grow and change over time and it is important to allow for that.

Please note, if your business has a board (for a non-profit or a for-profit business) you should also consider Directors and Officers, commonly called D&O, insurance. This insurance covers board members if the company is sued including losses associated with the lawsuit and legal defense fees. These policies typically do not cover fraud or other criminal offenses. In most cases, you will not be able to get this insurance for your non-profit business until after you receive non-profit status from the IRS. If you do not have a board for your business then you do not need this insurance.

What happens at tax time?

Filing taxes is an important part of any business. Learn more about basic tax information for individuals and for-profit businesses here.

Taxes for a non-profit organization are a little different. Non-profit organizations by their nature are not taxed on profit—they are known as “tax exempt.”

Most non-profits must still file annual tax returns with the IRS using a specific form depending on the revenue of the business. Find information on that form here. A few organizations are exempt entirely from filing this form such as most faith-based organizations. If you must file this form and do not file for three years in a row, then your tax-exempt non-profit status will be revoked.

Is non-profit status right for your pole business?

Really think about your business idea. Are you providing an eligible, according to IRS guidelines, non-profit service? Or are you just trying not to file taxes? Be honest with yourself and make sure you are completing all necessary steps in filing appropriate paperwork.