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How To Start a Nonprofit Organization Benefitting Youths

Kids working with gadgets

Want to start an organization to help young people? Your best bet is to set up a nonprofit registered as a tax-exempt organization with the Internal Revenue Service (IRS). Many nonprofits organize under Section 501(c)3 of the Tax Code because it lets the organization avoid being taxed on its income and encourages donations by providing a tax deduction for contributions.

Since your nonprofit will be working closely with minors, it will also need to ensure all applicable safety rules are followed and that you have investigated the background of any adults who will be working with the children. Failure to take these steps could leave your organization at risk for a lawsuit if a child is injured. Additionally, if the directors and officers have failed to follow corporate formalities in managing the organization, they could be found personally liable for wrongdoing by staff, officers, or volunteers.

In the following sections, you will find the recommended steps for setting up a nonprofit organization for youths to give it the best chance to succeed in its mission.

The Nonprofit Business Plan

Most people don't associate business plans with nonprofit organizations. Still, a detailed business plan can provide your nonprofit with a clear outline of how it should operate over the first three to five years. The plan should lay out how the nonprofit will operate and how it will achieve its goals.

A nonprofit business plan will also help you secure the support of donors and volunteers by clearly laying out what you hope to achieve and the steps necessary to fulfill your objectives.

Most nonprofit plans include the following sections:

  • Mission statement. This lays out the organization's core values and other principles that will be guiding its efforts.
  • Programs, products, and services. This section should explain what the organization is planning to do and who its activities will benefit.
  • Financial information. This includes funding sources, funding projections, and anticipated costs.
  • Marketing plan. This should detail outreach campaigns and initiatives to let those you want to help know about the benefits your nonprofit intends to provide.
  • Operational plan. This should explain how your organization expects to deliver its benefits to young people and how the benefits you provide will be assessed.

Finally, your nonprofit business plan should have a one-page executive summary that introduces the plan and a concise overview of its contents. The executive summary should serve as a tool for selling your nonprofit to potential donors and volunteers.

Choosing a Nonprofit Name

Picking the right name for your nonprofit is an important decision when establishing your organization. A good name should distinguish your nonprofit from other organizations and inform people of its mission helping youths.

The name should be memorable and just long enough to succinctly convey the nonprofit's mission so people can identify its goals just from hearing the name. Additionally, a good name will help your organization stand out from others seeking to help young people.

Finally, you should test how potential donors, volunteers, and young people respond to your proposed name. Remember, once you have established your nonprofit under a name, it will likely be a hassle to change it. Not only will it need to be changed on its registration with the state, the IRS, and other entities, outsiders are unlikely to recognize that the new name applies to an existing organization. That means you may lose the name recognition and trust that people had in the last name.

Structuring Your Nonprofit as a Legal Entity

If you want to protect the owners and directors from being personally liable for debts and obligations of the nonprofit, you should structure it as a corporation. The IRS will also let organizations structured as associations or trusts register as 501(c)3 entities, but those do not offer as many benefits to members as a corporation.

Nonprofit limited liability companies (LLCs) will provide their members with protection from personal liability. Still, the IRS will not grant an LLC 501(c)3 status unless all its members are 501(c)3 organizations.

To organize your nonprofit as a corporation, you will need to register with the state, and it will need to make periodic filings and disclosures. Additionally, it must take steps like naming directors and holding annual meetings if your nonprofit wants to maintain its corporate status. While many people organizing nonprofit corporations seek out the help of an attorney to prepare the necessary documents, they are not incredibly complicated and are often designed by non-lawyers.

One final benefit of organizing your youth nonprofit as a legal entity such as a corporation is improving eligibility for grants. Governments and private organizations that offer grants often require that the nonprofits be incorporated to receive them.

Applying for a Tax Exemption

After incorporating your nonprofit, you will still need to apply for tax-exempt status with the IRS by completing an IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)3 of the Internal Revenue Code. If your nonprofit has less than $250,000 in total assets and $50,000 in annual receipts, it may be eligible to apply online using the streamlined Form 1023-EZ.

You should file your Form 1023 with the IRS within 27 months of the day you file your nonprofit's articles of incorporation. When you file articles of incorporation, the IRS will consider your nonprofit to have been an exempt 501(c)3 organization as of the date of incorporation. That is important because it will ensure that donors can deduct any donations you received immediately after incorporation. Failure to file within 27 months will result in the IRS only applying for the exemption after Form 1023 was filed.

Funding Your Youth Nonprofit

Even if you are planning on staffing your youth nonprofit with unpaid volunteers, you will still need a source of income to cover items like supplies and administrative costs. You may be planning to start the organization using your own money, but if you want it to be a long-term success at some point, you are likely to need additional financial support.

Most youth nonprofits focus their fundraising activities on one or more of the following:

  • Registration filing fees are popular with many youth-oriented nonprofits operating sports leagues or community education courses because they can cover most or all the costs of conducting their activities.
  • Individual donations are how most nonprofits raise most of their money and make up more than 70 percent of charitable contributions in the United States. These contributions can be in small amounts from many donors or a few large donations from major donors.
  • Events such as charity runs, auctions, golf tournaments, and even haunted houses have traditionally been significant sources of income for nonprofits that also help to publicize the organization.
  • Sponsorships let your nonprofit partner with other organizations that will supply you with cash or in-kind donations. In return for its assistance, the partner will usually want your nonprofit to display its logo as a sponsor or some public recognition for its sponsorship.
  • Grants from governments or foundations that seek to further the youth-oriented activities being pursued by your nonprofit. While grants can be quite large and cover most of your organization's expenses, the application process is often complicated and time-consuming, and there is no guarantee your organization will receive one.

Background Checks for Volunteers Working With Minors

Whether it be volunteer coaches for a youth sports league or parents to chaperone a museum day trip, most youth nonprofits would be unable to function without the help of adults who contribute their time to the organization. However, before you begin recruiting volunteers, you should put a background check policy into place for your nonprofit to be sure they have no red flags on their records before they start working with minors.

The policy should require that all volunteers, staff, directors, and other individuals working with your nonprofit have a clean record and that they submit to an additional check each year. Keeping the policy simple and requiring that everyone submit to a background check ensures that the organization will have records for anyone working with children. Additionally, nobody can argue there was a personal bias in requiring specific individuals to be checked instead of others.

Most commercially available background checks will confirm the identity of the person being investigated and look to see if they have any of the following on their record:

  • Felony convictions
  • History as a sex offende.
  • History of domestic violence or child abuse
  • Serious driving infractions like driving while under the influence

Also, check your state laws regarding background checks because some states require youth sports organizations to review the records of all volunteers.

Who Pays for the Background Check?

Organizations that require background checks of their volunteers and staff usually end up paying for them. Most volunteers are already giving up their valuable time to help and may not want to pay for the privilege of being investigated. Some volunteers would indeed be willing to pay for their background checks, but it's likely that the nonprofit would also end up alienating qualified volunteers.

Depending on how detailed a background check you want to run, they can cost between $10 and $50 per individual. Since most youth nonprofits will need volunteers while starting up, it is generally a good idea to set aside money for the background checks as early as possible.

Hiring Nonprofit Staff

Most nonprofits start small and try to avoid hiring staff when they are beginning operations. Unfortunately, some tasks take up too much time for someone to do on a volunteer basis or require the services of a qualified professional. While hiring staff is usually an unwanted expense, the good news is that people are often willing to take less money to work for a nonprofit if they believe in its mission.

If your nonprofit hires an independent contractor to work for it, the organization will not be responsible for such items as the employer's portion of the payroll tax and income tax withholding. However, if the staffer is performing an employee's duties, the organization will be responsible for covering the payroll tax, withholding income taxes, and other employer-related obligations. It is also likely that you will need to find someone to handle the nonprofit's payroll responsibilities.

Finally, hiring staff usually means that your nonprofit will need to follow your state's employment laws and address other employment-related issues.

Insurance

Insurance may seem like an expensive luxury if you are operating a small, bare-bones nonprofit. Still, those organizations are the least likely to have the resources to weather the types of unexpected expenses usually covered by insurance. Some types of insurance policies to consider include:

  • General liability insurance provides coverage if someone is injured during one of your nonprofit's activities or events.
  • Directors and officers insurance offers protection to those individuals if they are personally named in a lawsuit against your nonprofit.
  • Property insurance covers the space your nonprofit owns or occupies.
  • Auto insurance covers vehicles used for organizational business, including personal vehicles.
  • Required state and federal insurance for employees, including workers' compensation and unemployment insurance, need to be provided by the nonprofit.

Renting Office Space

When a nonprofit reaches the stage where it must hire staff, it is usually time to start thinking about renting office space. Once you have determined your office needs it is often a good idea to reach out to a real estate broker who knows the market and has access to the information necessary to find a lease that suits your business needs.

The questions you should consider when looking for an office to lease should be:

  • How much space do you need? (200 feet per person is recommended)
  • Will meeting space be required?
  • Does it need to be easily accessible by the public?
  • Is there enough parking?
  • Are the building and parking lot safe?
  • What is included in the lease?
  • Who handles repairs?
  • Is it adequately wired for your needs?

Marketing Your Nonprofit

Nonprofit marketing refers to the organization's efforts to spread its message, encourage donations, and recruit volunteers. While many only associate marketing with for-profit businesses, most successful nonprofits engage in marketing activities in some form or another to help achieve their goals. That often includes public relations, media, promotional fliers, and public service announcements (PSAs).

Additional Questions About Forming a Youth Nonprofit? Contact an Attorney Today

In theory, forming a nonprofit to benefit young people should be a relatively simple matter. Unfortunately, given the steps it must take to retain its tax-exempt status and protect its officers from personal liability, things can get complicated fast.

Plus, any mistakes you make early in the formation process could lead to significant problems down the road. For example, failing to properly incorporate your nonprofit when it was formed could lead to the IRS rejecting your request for 501(c)3 status, which leaves the organization without an exemption and causes donors to lose any claimed deduction. That is why it is usually a good idea to consult with a local attorney before you take action to form your nonprofit.

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