Starting a Nonprofit Organization

How many people do you know are able to make a difference and help out thousands of people? I would guess that not many people will have quite that large of an impact. There is a way where you can serve and help out countless people, by starting a 501(c)3 nonprofit organization.

Three years ago, I started Celebrate Everyday, a 501(c)3 nonprofit organization that provides free and low-cost prom and wedding dress rentals to any young lady in Utah. In the three years that we have been operating, we have provided dresses for over 1,200 young ladies, sponsored and hosted two homeless youth proms, two refugee proms and were partners for the Tim Tebow Foundation Special Needs Prom in Utah.

Starting a Celebrate Everyday has allowed me to impact the lives of hundreds of people. If you are also interested in creating an organization that will have an impact, it only takes a few steps to start!

First thing is first … what is a nonprofit? Put simply, a nonprofit organization is a company that uses all of its resources to serve the public. There is no owner of this company, it is merely ran by a board of directors and ran according to bylaws that the board of directors write … that’s pretty cool.

Step 1: Deciding if Your company is Fit to be a Nonprofit Organization

Deciding whether you want to be an official nonprofit organization is a difficult decision. You do not need to be an official nonprofit to do run a company that has a positive mission. In fact, many companies donate large portions of their profits to good causes without being a nonprofit!

There are many pros and cons to becoming a nonprofit, I would recommend thinking about before making a decision. Here are just a few to consider:

Pros:

Taxes – You don’t need to pay taxes (which adds up). You also get to relieve others of tax burdens by writing tax write off receipts for a donation to your organization. It is great to not pay taxes for your company, and allow others to get a small tax write-off, too!

Good cause – No one doubts your intent as a nonprofit. When I told different people and organizations that I was running a nonprofit, they were so excited to help and offer services and products free of charge. People were excited to be part of a good cause, and being 501(c)3 makes that cause official.

Cons:

You aren’t adding financial value to yourself – At the end of the day, if you have built a large company that is sustainable and doing well, you can’t sell it. You don’t own your organization, so if you want it to continue without you, you will need to hand it over at no charge.

I decided that I wanted Celebrate Everyday to be a 501(c)3 nonprofit organization to dismiss any questions about the mission of the company. We would serve young ladies, and that is it. Every move in the company was focused on helping young ladies, and being a nonprofit encouraged others to also get involved and support their mission. When people learned about Celebrate Everyday, they were excited to donate and help our cause. The donations and services we were given in the first two years alone resulted into over $100,000. We would not have been able to get that help and support to serve so many young ladies without the benefit of being a 501(c)3 nonprofit organization.

Step 2: Gathering a Board of Directors

No one should start a company alone, and yes, a nonprofit organization is a company. The board of directors (a.k.a. cofounders) for Celebrate Everyday consisted of three members, myself, a vice president and a treasurer. We started off as acquaintances and grew to be best friends as the company grew! Not a day went by that the three of us weren’t talking and brainstorming about the next moves for the company, and who we should serve next.

The most important advice I can give for finding a board of directors is finding others who are passionate about the problem you are solving. All three of us donated hundreds of hours of our time, and our own money to the organization knowing that we would never be paid back. Because we all were so excited and wanted to help young ladies in need, we were happy to do it.

Step 3: Create Bylaws

The bylaws of a nonprofit organization is the most important document. Simply put, the Bylaws are a document stating what each board member will do, how they will do it, and how the board members will be decided and replaced. This document will otherwise control the lives of the board. Seems pretty scary, but it’s not, because you are the one who writes these bylaws. Make it simple, or make it complex, whatever you feel; just remember you will live your life and be held accountable to whatever you put in the organizations bylaws. These bylaws are public, so writing in that you will use nonprofits money to buy yourself unlimited Oreos, is probably not the greatest idea.

When writing byLaws for Celebrate Everyday, I found many templates on Pinterest. I modified these templates and made a version as simple as possible. Celebrate Everyday didn’t need anything complicated to start. As the company grew and become more complicated, we had to amend the bylaws and add more rules and restrictions, such as when a board member could go on vacation and what would happen during a month when we didn’t have a board meeting.

Step 4: Registration and Filing

Once you have a board and bylaws, you can now register your nonprofit. This is done through the department of commerce of each state, by filling out articles of incorporation (find Utah resources at utah.gov). In Utah, I paid $75 for a nonprofit organization registration and $30 for the name reservation to establish Celebrate Everyday as a corporation. This is super easy to fill out, it is just like any other sort of registration: name, date, birthday, address … check.

Registering as a nonprofit organization is needed to get an employee identity number (or tax ID number). This number allows you to create a bank account, receive donations and sell goods, but it also requires you to pay federal taxes … ugh. As mentioned above, one of the benefits of being a 501(c)3 nonprofit organization is that you don’t have to pay taxes.

Filing through the department of commerce does not make you an official 501(c)3 tax-exempt nonprofit; that must be done through the IRS individually and is explained in the next step.

If you want to upgrade your status from nonprofit to official nonprofit organization and get 501(c)3 nonprofit organization status, in your articles of incorporation you will need to state in the purpose: “(Name of organization) is organized exclusively for charitable purposes under Section 501(c)(3) of the Internal Revenue Code or corresponding section of any future federal tax code.”

I know, it’s a mouthful, but if you don’t put that as the purpose now, and you want to get 501(c)3 status later, you will need to amend your articles and that costs $17 and another form to fill out.

Step 5: Becoming an 501(c)3 Tax-Exempt Nonprofit Organization

There are specific requirements for filing for 501(c)3 tax-exempt status, and the whole process is done online. If your nonprofit organization is small (like Celebrate Everyday) and is predicted to receive less than $10,000 a year in revenue, you are in luck, and can fill out the 1023-EZ form! This form makes you answer many, many, many questions ensuring that your organization is qualified to become tax exempt.

One of the most important questions you will be asked when filling out the 1023-EZ form is the type of nonprofit organization that you are. There are hundreds of different types of nonprofit (who knew?), from a service-based organization, charity, religious group, school group, ect. You will need to look through the options and select the type of nonprofit that is the best fit for you. I classified Celebrate Everyday as a charity with a focus on youth.

The cost of filing this form is $250, which I considered a ton of money at first, especially for a nonprofit, but I found that many people were excited to help out and donate this money. It took three weeks for the form to be processed, and I received an official letter from the IRS stating Celebrate Everyday as 501(c)3 in the mail. This letter is essential! Don’t throw it away. Many companies that help out 501(c)3 organization will request to see this letter before helping you out.

Starting Celebrate Everyday was a very hard decision. I knew from the beginning that I would be donating much of my time and energy into this company with no monetary return for building a company. Being able to serve so many young ladies in need and providing a way for others to also serve young ladies in need has been much more rewarding than I ever thought possible. The rewards of helping so many young ladies, the connections made, and the legacy of Celebrate Everyday far outweigh any downside.