Being involved in the nonprofit sector provides an opportunity to feel good about making a difference in your community, city, state, or even the world. Many do this through working at a nonprofit organization (10% of the American workforce or 11.4 million jobs), volunteering (approximately 63 million Americans or 25% percent of the adult population), donating (about $390 billion) or a combination of ways. The passion for an organization’s mission is what drives the involvement.
Some changemakers are so inspired and have a great program idea that they want to create their own new nonprofit organization. While this passion may feel great, many proceed in creating a new organization without understanding the federal, state, and local laws, regulations, and filing requirements. As an all too frequent result, they aren’t in compliance.
Based on the most recent IRS data from 2015, there are approximately 1.6 million tax-exempt organizations in the United States and the majority are small organizations (of the approximately 1 million that are public charities, 67% had less than $500,000 in expenses). This means there are nearly 700,000 organizations with likely very limited resources to adequately handle their operational and compliance requirements. It also means there is significant competition for funding. So instead of creating a new nonprofit organization, consider the following three proactive options.
Program – Explore if there are other organizations already in existence that have similar missions to the one you wish to create. If so, reach out and discuss whether your idea could actually be a program within an existing nonprofit organization.
Fiscal Sponsorship – This arrangement allows you to collaborate with an existing 501(c)(3) public charity (aka sponsor) under a signed contract. Your group, while not incorporated or having received tax-exempt status, could solicit grants and tax-deductible donations using your sponsor's exempt status. Be sure to consult with your tax and/or legal advisers regarding the details and any applicable limitations.
Strategic Alliance – This arrangement allows you, without being incorporated or having received tax-exempt status, to enter into an agreement with two or more existing organizations to accomplish shared goals. This could include shared staffing and space.
If you’ve determined that there isn’t an organization in existence that would make one of the aforementioned options possible, then before starting a new organization, confirm that you:
- are using an attorney with expertise in setting up nonprofit organizations,
- have researched the appropriate laws and regulations,
- are prepared to set up the appropriate governance structure for oversight,
- have an effective business plan and budget, and
- have enough human and financial resources to carry out the mission of the organization for the foreseeable future.
Visit the governance and management area of the Not-for-Profit Section Resource Library for resources, tools, and additional guidance related to these important considerations.