Put your passion to work.

You’re already doing a great thing by volunteering your time to a worthy cause, but maybe it’s time to step it up a notch and make your part-time passion your full-time job. Set up shop with these tips on how to:

• Pick a name for your organization and write an effective mission statement
• Handle incorporation, tax planning, and other legalities and logistics
• Attract top-of-the-line volunteers, board members, and full-time staffers

Why Start a Nonprofit?
People choose to start nonprofits for a variety of reasons, but the following three are among the most common:

To make a difference: Forming a nonprofit organization is a great way to contribute positively to the world around you by identifying significant community needs and implementing a carefully considered plan to address these needs.

To obtain tax-exempt status: Nonprofit organizations that meet certain IRS criteria are not obligated to pay taxes on the donations they collect.

To attract a wider array of donors: Many donors view 501(c)(3) status—the IRS designation for nonprofit organizations that meet certain standards—as a seal of approval and donate only to organizations who have it. Others use charitable donations as a way to reduce the amount of taxes they must pay to the government each year. Only donations to IRS-recognized nonprofits are tax deductible.

What Is a Nonprofit?
A nonprofit organization is a group with a purpose other than raising money to make a profit. These groups are defined by what they do with the money that they raise or earn throughout the year. In the United States, there are more than 800,000 nonprofit organizations—corporations, community chests, funds and foundations—that are estimated to hold more than $1 trillion in assets collectively. Their missions are diverse and include the following aims:

• Religious
• Charitable
• Scientific
• Public safety–related
• Educational
• Artistic
• Healthcare-related
• Social welfare–related

Though there are several different types of nonprofits, for the purposes of this document we will be referring to public charities with 501(c)(3) status. Congress and state legislatures have exempted these nonprofits from paying certain taxes through section 501(c)(3) of the Internal Revenue Code. In return, nonprofits must closely adhere to strict standards of conduct and activity. Unlike businesses, which can distribute excess money to shareholders, nonprofit organizations are obligated to keep the money in reserve or put it back into their programs and operations. The Internal Revenue Service (IRS) also requires that tax-exempt organizations permanently dedicate their assets to an exempt purpose and state this intent in their organizing documents.

Nonprofit Ownership Basics
Though many constituencies—founders, staff, volunteers, clients and board members—have an interest in the success or failure of a nonprofit organization, none of these parties, or any other party, owns the entity. Neither founders nor board members nor staff nor anyone else can receive nonprofit funds except for reasonable compensation for services provided or reimbursement for expenses.

In addition, nonprofits can’t be bought or sold. Their assets—that is, the buildings, supplies, equipment, and other tangible items they own—can be sold if the funds are reinvested in the charity itself or donated to another nonprofit. When a nonprofit founder decides to move on, he or she must hand the reins to someone else or close the charity’s doors and distribute its assets to another organization that benefits the public.

Types of Nonprofits
Civic organizations, churches, trade and professional associations, sports clubs, fraternities and sororities, chambers of commerce, credit unions and even cemetery companies fall under the IRS’s tax-exempt organization umbrella.