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 over 12 million jobs, according to the U.S. Bureau of Labor Statistics), volunteering (approximately 76 million Americans or 28% percent of the adult population according to AmeriCorps), donating (about $593 billion according to Giving USA) or a combination of ways. The passion for an organization’s mission is what drives involvement.
Some changemakers are so inspired and have a great program idea that they want to create a 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 are not in compliance and many are unsuccessful.
Of approximately 1.8 million tax-exempt organizations in the United States, the majority are small organizations. According to the Independent Sector, the United States has approximately 1.3 million public charities. These organizations continue to operate with constrained staffing and financial resources, which limits their ability to adequately handle their operational and compliance requirements. The capacity limitations also intensify the competition for funding. So instead of creating a new nonprofit organization, consider the following 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 be a program within an existing nonprofit organization.
Fiscal Sponsorship – This arrangement allows you to collaborate with an existing section 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.
Volunteer – Perhaps there is an organization which needs a volunteer to kick-start a program nationally or locally. This arrangement allows you to leverage a larger community to achieve the purpose of the program.
If you have determined that there is not 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 – both Federal and State,
are prepared to set up the appropriate governance structure for oversight,
have an effective business plan and budget (and have adequately estimated and scoped the costs)
understand how to demonstrate your impact;
consider that, given the landscape for raising funds, there is enough of a market to raise sufficient revenue, and
have enough human and financial resources to carry out the mission of the organization for the foreseeable future.
Visit the Not-for-Profit Section Governance Resource Library for resources, tools, and additional guidance related to these important considerations.
Additional Resources:
How to evaluate a new not-for-profit program