How To Start a Nonprofit Organization With No Money
You have the most fabulous nonprofit idea. You want to start a baseball league, or a neighborhood club, or a political action committee. Or maybe you have created a grassroots organization that is ready to take on a large project, and you want to solidify your presence in the world. Now, you want to file for your 501(c)(3) tax-exempt nonprofit organization status under the Tax Code.
But, you don't represent a foundation. You haven't just inherited a fortune. You can't quit your day job. You don't have any money to get it started.
FindLaw is here to help you get your nonprofit off the ground without any (or at least not very much) of your own money.
(Note: Findlaw has sections on how to start a nonprofit, how to obtain tax-exempt status, and other vital information to know when starting. This article is solely on how to start a nonprofit with no money).
You have to accomplish several things before you can do any fundraising as a 501(c)(3). Each of these topics needs to be explored in-depth with your attorney and advisors, but here is a brief overview.
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Have a Vision, Have a Business Plan
Put together a plan that will attract helpers and donors. You will not be able to use any of the following ideas unless you have a business plan that thoroughly explains the vision and purpose of your organization. This will help in creating your tax exemption.
You will at least need both a vision statement and a mission statement. A vision statement lays out why you are starting the organization. An organization's mission statement lays out how you are going to make the vision real.
Research How Much Money You Will Need
You will not be able to engage in any actual fundraising as a tax-exempt organization until you have a business presence and nonprofit status. There is no way around paying a few small fees to the government and no way to speed up the process. Your attorney will be able to walk you through all the necessary actions to accomplish this, but generally figure that you will pay around $1,000 to the state and federal government. The process will take several months. You may also have attorney fees.
The good news is that you can raise this money from any of the organization's stakeholders. Just remember to keep outstanding records.
Make a List of Potential Donors
Starting with family members and friends, make a list of people you know who may want to donate to the cause with tax-deductible contributions. Your solicitation can go out to small local clubs (Elks, Lions), women's groups, faith groups, and the like. These organizations may allow you to make a presentation to promote your cause. Local banks often have a few dollars to give to local charities. You can contact advocacy groups like the National Urban League. And a local business may be interested in giving money or providing volunteers or other help, mainly if it is in the neighborhood impacted by the organization.
While asking around town about those possibilities, talk up your nonprofit to everyone you can. You never know when someone is looking to make a positive impact.
Create a Board of Directors
At the top of your organizational structure is an Executive Director and a Board of Directors. A Board of Directors can do at least four positive things for a nonprofit startup with no money:
- Act as an advisory board during board meetings and beyond.
- Give the organization credibility in the community.
- Create contacts for fundraising and finding funders.
- Act as a fundraising vehicle to raise funds itself.
As to the last point, you can develop a "board giving plan," where each board member contributes a monthly or annual amount to the organization via bylaws. With suitable board membership, this can be the source of the start-up capital you will need to pay regulatory fees.
You should consult with your attorney about the best way to form your basic business structure. You may or may not want to incorporate, a decision that may also hinge on whether you obtain a fiscal sponsor (see below). You do not have to incorporate, but becoming a nonprofit corporation is often the safest way to proceed. The incorporation process should be handled by a lawyer, who will write your articles of incorporation and file the proper paperwork. This will also allow you to open a bank account. Your first expense should be your business filing fees.
Register with State and Federal Governments
For State: Whatever your business structure, most states require that a new nonprofit organization register with the state's Secretary of State. This will include the designation of someone as the nonprofit's agent.
For Federal: Before you file for your 501(c)(3), you must file a Form 1023 or Form 1023-EZ with the Internal Revenue Service (IRS). This registers your organization with the IRS as a nonprofit. It is required of all charitable organizations.
Create a Public Presence
You will need to have a distinctive public face to attract donors, associates, and helpers—as well as to locate the people you wish to serve. This will direct potential donors and other interested parties to your nonprofit. People need to know that your organization exists and that their donations will be tax-exempt before you can begin any programming.
Suppose you are on your own. At the very least, you will need to take a few hundred dollars and register a name, incorporate, apply for your tax-exempt status, put up a website, establish a social media presence, and have a storefront or meeting space.
Some of that will involve various fees. If you do not want to take those fees out of your pocket, you will need to raise a little bit of money from somewhere to get off the ground.
One way of starting a nonprofit without money is by using a fiscal sponsorship. A fiscal sponsor is an already existing 501(c)(3) corporation that will take a new organization “under its wing" while the new company starts up.
The sponsored organization (you) does not need to be a formal corporation. It can be in any state of organization, but this relationship is primarily for start-ups that have little to no financial resources at the beginning.
The sponsored organization is basically "borrowing" the fiscal sponsor's tax-exempt status. The agreement, which attorneys should put in writing, can provide back-office functions, meeting space, advice, and any budgetary functions up to and including fundraising and even loans.
The sponsored organization can be of any size and be in business for any length of time. Fiscal sponsorship is perfect for short-term projects.
Because fiscal sponsorship utilizes tax-exempt status in the place of the sponsored organization, and because the sponsor handles all the money, the sponsor is taking some risk. You need to have a good business plan and concrete steps to reach your goals before approaching a potential sponsor. If successful, this can be a great way to get a nonprofit off the ground with little or no money.
Your fiscal sponsor should be a local organization with the structure, skill, and history to accomplish this. An excellent place to start looking for a fiscal sponsor is the National Network of Fiscal Sponsors.
Even with a fiscal sponsor, you will still need to have a plan, an administration, a mission, and other parts of a nonprofit startup.
Obtaining large grants is a complex process that requires real professional help. But there may be smaller community-based grants that are easier to apply for and receive. Many major chain stores have small community grants available (Wal Mart is one). Ask every big box store if it has a community grant program. A local small business may give money to the community.
Once you have an actual presence in the world, you can engage in online fundraising. Many people use GoFundMe for charity startups. Looking at their requirements will be a good way to see what online fundraising takes. GoFundMe Charity (a separate organization) can also help with getting the nonprofit off the ground.
You can also put on an event like a charity ball or a fundraising concert, and charge attendees or ask for donations.
Connect With Other Nonprofits
Organizations of nonprofits often give great advice. Most states have associations of nonprofit organizations. Here is a resource to connect with your state's association. You can also contact the National Council of Nonprofits.
Get the Right Legal Help
No matter how you go forward with any of these ideas for starting a nonprofit with no money, you may need help forming your business. If you would prefer to form your business yourself, consider using a trusted DIY business formation tool like the one we offer.
You may also benefit from legal advice from a lawyer familiar with all of the complex laws with which you will be dealing. Speak to a lawyer in your area who knows the ins and outs of starting a nonprofit.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.