Starting a nonprofit organization is a noble endeavor, providing a means to give back to your community and make a meaningful impact on your chosen cause. In Pennsylvania, establishing a nonprofit involves a series of steps that ensure your organization is legally compliant and capable of achieving its mission. With careful planning and attention to detail, you can navigate the process effectively and set your organization up for long-term success.
1 – Define Your Mission
One of the most critical steps in establishing your nonprofit organization is defining your mission. The mission statement is a clear, concise declaration of the organization’s purpose, goals, and values. It articulates why your organization exists, who it serves, and how it serves them. This statement is often the first thing potential donors, volunteers, and beneficiaries see, so it’s essential to make it engaging and meaningful.
Importance of a Clear, Specific Mission
The importance of a clear, specific mission for a nonprofit cannot be overstated. A mission statement is the foundation for all your organization’s activities, decisions, and communications. It not only provides direction for your current operations but also guides your organization’s growth and evolution. A clear mission can help:
- Align the team: Everyone involved in your nonprofit, from staff to volunteers, can refer to the mission statement as a guiding principle.
- Attract supporters: Potential donors, partners, and volunteers are drawn to organizations with clear, compelling missions.
- Measure success: Your mission statement provides a standard against which you can assess your organization’s progress and impact.
Tips for Defining the Mission of Your Nonprofit
- Identify your Purpose: Clearly state the reason your organization exists. What societal need are you addressing?
- Describe your Methods: Explain how your nonprofit intends to fulfill its purpose. What specific actions will you take?
- Define your Audience: Identify who will benefit from your work. Is it a specific community, demographic, or group?
- Be Concise and Clear: Keep your mission statement simple and easy to understand. Avoid jargon and elaborate language.
- Inspire Action: Your mission statement should motivate others to get involved. Make sure it’s compelling and aspirational.
Examples of Strong Nonprofit Mission Statements
To give you an idea of what a strong mission statement looks like, here are a few examples from existing nonprofits:
- Charity: Water: “Charity: Water is a nonprofit organization bringing clean and safe drinking water to people in developing countries.”
- American Red Cross: “The American Red Cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.”
- Pennsylvania Environmental Council: “The Pennsylvania Environmental Council protects and restores the natural and built environments through innovation, collaboration, education, and advocacy.”
These mission statements are clear, succinct, and directly state the organization’s purpose, approach, and the audience they serve. They inspire involvement by portraying a compelling vision for change.
Crafting your mission statement can take time and thought, but it’s a worthwhile investment. It will serve as a beacon, guiding your nonprofit organization as you navigate the journey ahead.
2 – Laws and Regulations for Nonprofits in Pennsylvania
When establishing a nonprofit organization in Pennsylvania, understanding the state’s legal requirements is crucial. Key pieces of legislation to consider are Pennsylvania’s Nonprofit Corporation Law of 1988, various IRS requirements for nonprofits, and the implications of Pennsylvania’s Solicitation of Funds for Charitable Purposes Act.
Pennsylvania’s Nonprofit Corporation Law of 1988
Pennsylvania’s Nonprofit Corporation Law of 1988 is the main piece of legislation governing nonprofit organizations in the state. It outlines the rules and regulations regarding the formation, management, and dissolution of nonprofit corporations.
Key features of the law include:
- Formation: The law provides guidelines for creating a nonprofit corporation, including choosing a suitable name, preparing articles of incorporation, and establishing a board of directors.
- Management: It offers rules for managing a nonprofit, such as conducting meetings, establishing bylaws, and handling financial affairs.
- Dissolution: The law outlines how to dissolve a nonprofit organization in Pennsylvania, providing clear steps for distributing remaining assets and officially terminating the corporation.
Understanding these rules is essential to ensure your organization remains in compliance with state law.
Pennsylvania’s Solicitation of Funds for Charitable Purposes Act
This Act regulates how nonprofits solicit funds from the public in Pennsylvania. It’s designed to protect donors and promote transparency in the nonprofit sector.
Under this Act:
- Registration: Nonprofits must register with the Pennsylvania Department of State’s Bureau of Corporations and Charitable Organizations before they begin fundraising.
- Financial Reporting: Registered nonprofits must file an annual financial report detailing the income and expenditure related to their charitable solicitation activities.
- Disclosure Requirements: Nonprofits must provide certain information to donors upon request, such as a copy of the official registration and financial information.
Understanding these laws and regulations can help your nonprofit navigate the legal landscape in Pennsylvania and ensure you remain compliant as you operate and grow your organization. Always consult with a legal advisor or an attorney experienced in nonprofit law in Pennsylvania to ensure your nonprofit meets all its legal obligations.
3 – Choose a Name
Choosing a name for your nonprofit organization is a significant step in the formation process. The name you select will not only identify your organization but also communicate your mission and values to the public. It’s therefore vital to pick a name that’s unique, meaningful, and in compliance with Pennsylvania’s naming regulations for nonprofits.
Regulations for Nonprofit Names in Pennsylvania
According to Pennsylvania’s Nonprofit Corporation Law of 1988, a nonprofit corporation’s name:
- Must be distinguishable from other entity names registered with the Pennsylvania Department of State. This rule helps avoid confusion among the public.
- Cannot contain language stating or implying that the corporation is organized for a purpose other than what’s permitted by its articles of incorporation and the law.
- Cannot include certain restricted words or phrases unless the corporation has complied with applicable special requirements. For instance, words like “bank,” “trust,” or “insurance” might require additional paperwork or licensure.
Choosing a Unique, Memorable Name
When brainstorming names for your nonprofit, consider the following tips:
- Relevance: Choose a name that reflects your mission and the community or cause you want to serve. It will make it easier for those seeking your services or those looking to support such services to find you.
- Simplicity: Make it easy to spell and pronounce. This makes your organization more memorable and easier to find, especially online.
- Originality: Aim for a unique name to stand out from the crowd and avoid potential legal issues.
- Futureproof: Choose a name that will remain relevant even as your organization grows or expands its services.
Checking Name Availability
Before you settle on a name, you need to verify that it’s available for use. You can do this by conducting a business entity name search on the Pennsylvania Department of State’s website.
If your desired name is available, Pennsylvania allows you to reserve it for 120 days by filing a Name Reservation form with the Department of State, Bureau of Corporations, and Charitable Organizations and paying a small fee. This process ensures nobody else can register the name while you’re preparing your incorporation documents.
Choosing a name for your nonprofit is a big decision that will have long-lasting implications. Take your time to choose a name that will effectively represent your nonprofit’s mission and values.
4 – Create Bylaws
Bylaws are essentially the rulebook that governs how your nonprofit operates. They set forth procedures for things such as holding meetings, electing directors and officers, and handling other corporate matters. Not only are bylaws a legal requirement for nonprofit organizations in most states, but they also provide a clear framework for decision-making and conflict resolution, making them critical to your nonprofit’s success.
Explanation of Bylaws and Their Importance
Bylaws are internally focused legal documents that detail the governance and organizational structure of a nonprofit. They guide daily operations and overall management, providing clear procedures for key processes. The importance of bylaws includes:
- Governance: Bylaws establish the internal rules for how your nonprofit will be governed and managed.
- Conflict Resolution: Bylaws can help resolve conflicts by establishing processes and procedures for dispute resolution.
- Legal Compliance: Bylaws are required by the IRS for tax-exempt status and by the state of Pennsylvania for incorporation. They help demonstrate to both agencies that your organization is a serious entity with a well-planned management structure.
- Direction and Continuity: Bylaws provide a roadmap for new members of the organization, ensuring continuity and consistency in the face of leadership changes.
What Should Be Included in the Bylaws?
While the exact content of bylaws can vary, some key elements typically include:
- Organization’s Name and Purpose: While you’ve already declared this information in your articles of incorporation, it’s common to repeat it in the bylaws.
- Board of Directors: Your bylaws should specify the election process, term lengths, duties, responsibilities, removal process, and meeting schedules for your directors.
- Outline Officers’ Roles: Specify in the bylaws the officer positions, such as the president, secretary, and treasurer. Explain how you elect or appoint them, their term lengths, and their duties and responsibilities.
- Describe Committees: If your nonprofit has committees, use the bylaws to explain their formation, purpose, and member appointment procedures.
- Establish Meeting Procedures: Your bylaws should specify the frequency of meetings, the notification process, what makes a quorum for voting, and the voting procedures to follow.
- Define your Conflict of Interest Policy: This section should clarify what counts as a conflict of interest and the procedures for managing such conflicts.
- Explain Amendment Procedures: Your bylaws should lay out the process for amendments, usually necessitating a majority vote from the board.
- Detail Dissolution Clause: State in your bylaws the distribution plan for the nonprofit’s assets upon dissolution, ensuring it complies with state law and IRS requirements.
Compliance with Pennsylvania and Federal Law
When drafting your bylaws, it’s crucial to ensure compliance with Pennsylvania and federal law. For example, the IRS may look at your bylaws to determine whether your organization qualifies for tax-exempt status, specifically whether your organization’s structure and programs are primarily for exempt purposes. In addition, Pennsylvania law has specific requirements for the composition of the board and the management of nonprofit corporations.
To ensure legal compliance and the effectiveness of your bylaws, it’s advisable to work with an attorney or a professional experienced in Pennsylvania nonprofit law. Remember that bylaws aren’t a static document; as your nonprofit grows and evolves, you may need to revise them to keep up with your organization’s changing needs.
5 – Form a Board of Directors
One of the foundational steps in creating a nonprofit organization in Pennsylvania is forming a board of directors. A nonprofit’s board is legally responsible for oversight of the organization, ensuring it serves its mission and is financially sound.
Role and Responsibilities of the Board of Directors
The board of directors plays a significant role in the governance of a nonprofit. They are responsible for:
- Strategic Direction: The board sets the organization’s mission, strategic direction, and policies, ensuring alignment with the nonprofit’s purpose.
- Financial Oversight: The board ensures the organization is financially sound, its resources are managed effectively, and all financial reporting and legal requirements are met.
- Hiring and Evaluating Executive Director/CEO: The board hires, evaluates, and if necessary, fires the organization’s chief executive. They also determine the executive’s compensation.
- Fundraising: Board members play a crucial role in securing financial resources either by donating themselves or helping with fundraising efforts.
- Compliance and Accountability: The board ensures the organization is in compliance with all legal and tax requirements and operates in an ethical, transparent manner.
The composition of the board is crucial for effective governance. As per Pennsylvania law, a nonprofit must have at least one director, but it’s generally recommended to have a larger board with diverse skill sets. Many nonprofits aim for a board of 5 to 15 members, but the number can vary based on the organization’s size and complexity.
When selecting board members, consider their expertise, diversity, commitment to the mission, and willingness to serve. It’s beneficial to have board members with a range of skills and experiences, such as legal knowledge, financial expertise, fundraising abilities, and connections to the community your nonprofit serves.
Board Bylaws and Policies
Your organization’s bylaws should include a section dedicated to the board of directors. This section should define the number of board members, how they’re elected, their terms of service, officers’ roles and responsibilities, and procedures for handling board meetings and voting.
Other board policies might include a conflict of interest policy to ensure that board members act in the best interest of the organization, and a document retention policy to ensure important board documents are properly maintained.
Board Training and Evaluation
Once your board is formed, it’s important to provide appropriate training to ensure all members understand their roles and responsibilities. Regular board assessments can also help identify areas for improvement and ensure the board continues to support the organization’s mission effectively.
Forming a competent, dedicated board of directors is a critical task when starting a nonprofit in Pennsylvania. The board’s role in governance, strategic direction, and financial oversight can significantly influence the organization’s success and long-term sustainability. Therefore, consider carefully who you choose to serve on your board, ensuring they’re aligned with your mission and equipped with the necessary skills to guide your nonprofit toward achieving its goals.
6 – File a Certificate of Incorporation
Once you’ve defined your mission, chosen a name, created bylaws, and formed your board of directors, the next step in starting a nonprofit organization in Pennsylvania is to file a Certificate of Incorporation (also known as Articles of Incorporation) with the Pennsylvania Department of State.
Purpose of the Certificate of Incorporation
The Certificate of Incorporation is a legal document that formally establishes your organization as a nonprofit corporate entity in Pennsylvania. It provides the state with basic information about your organization and declares your intention to operate as a nonprofit. This document is also one of the key items reviewed by the IRS when considering your application for federal tax exemption.
Information to Include in the Certificate of Incorporation
In Pennsylvania, the Certificate of Incorporation for a nonprofit must include:
- The Name of the Corporation: This is the unique name you’ve chosen and verified for availability with the state.
- The Purpose of the Corporation: This should clearly align with IRS guidelines for tax-exempt organizations.
- The Registered Office Address: This could either be a street address or a rural route box number. P.O. Box alone is not acceptable.
- The Membership Statement: This section includes information whether the nonprofit will have members.
- The Duration Statement: Most nonprofits choose “perpetual” duration, meaning the nonprofit will continue to exist until it is legally dissolved.
- The Director Statement: This section provides information about your initial board of directors.
- The Incorporator(s): This section should include the name and address of the incorporator(s), who is the individual or entity filing the incorporation paperwork.
- The Dissolution Statement: This should state that, upon dissolution, the organization’s assets will be distributed for an exempt purpose, as described in the IRS Section 501(c)(3), or to the federal government, or to a state or local government.
Filing the Certificate of Incorporation
To file the Certificate of Incorporation, you need to:
- File the Form: Send the original signed Certificate of Incorporation, along with two copies, to the Pennsylvania Department of State, Bureau of Corporations and Charitable Organizations.
- Pay the Filing Fee: Check the current filing fee on the Pennsylvania Department of State’s website as it may vary over time, and ensure you pay it promptly.
Once your Certificate of Incorporation has been approved and filed by the state, your nonprofit corporation is officially formed. Keep in mind, however, that this is a legal document with significant implications. Therefore, it’s wise to seek the help of an attorney or professional experienced with nonprofits in Pennsylvania when preparing your Certificate of Incorporation.
Remember, incorporating your nonprofit is just the beginning. Next, you’ll need to obtain an EIN from the IRS and apply for tax-exempt status. Additionally, don’t forget to register for state and local taxes before you start operations.
7 – Obtain an Employer Identification Number (EIN)
Once you have officially incorporated your nonprofit, the next step is to obtain an Employer Identification Number (EIN). Sometimes referred to as a Federal Tax Identification Number, the Internal Revenue Service (IRS) assigns this unique nine-digit number to identify your organization for tax purposes.
Importance of an EIN
An EIN is not just for employers. It’s required for all corporations, including nonprofits, regardless of whether they have employees. Beyond tax filings, you’ll use your EIN when applying for tax-exempt status, opening a bank account in your organization’s name, applying for certain permits and licenses, and conducting other business activities.
How to Apply for an EIN
You can apply for an EIN from the IRS for free, and there are four ways to apply: online, by fax, by mail, or by telephone for international applicants.
The preferred method is to apply online, as the service is available 7 days a week, 24 hours a day, and you’ll receive your EIN immediately upon completion of the application.
To apply online:
- Visit the IRS EIN Application website.
- Click on the “Apply Online Now” button.
- Follow the prompts to complete the application.
When applying, you’ll need to provide information about your organization and the responsible party, who must be an individual (not an organization), such as a principal officer or director.
Once You Have Your EIN
After receiving your EIN, you should record it in a secure location. You’ll use this number frequently in the course of conducting your organization’s business.
Also, note that having an EIN does not automatically grant your organization tax-exempt status. To become tax-exempt, you must file specific documents with the IRS, a process we’ll cover in the next section.
Remember that obtaining an EIN is a crucial step in establishing your nonprofit’s legitimacy and ability to conduct business. As such, it should be completed early in your nonprofit’s formation process.
8 – Apply for Tax Exemption
Once your nonprofit is incorporated and you have an EIN, the next step is to apply for tax-exempt status. Most nonprofits seek 501(c)(3) status from the Internal Revenue Service (IRS), which provides federal income tax exemption among other benefits. After securing federal tax-exempt status, you’ll also need to apply for state tax exemption in Pennsylvania.
Overview of 501(c)(3) Status and Its Benefits
The IRS grants the 501(c)(3) status as a legal designation to nonprofit organizations that organize and operate for certain approved purposes.
The benefits of obtaining 501(c)(3) status include:
- Federal Income Tax Exemption: The nonprofit does not pay federal income tax on income related to its tax-exempt purpose.
- Eligibility to Receive Tax-Deductible Charitable Contributions: Donors can deduct their contributions to the nonprofit on their federal income tax returns, enhancing fundraising capabilities.
- Possibility of State Tax Exemptions: Many states and local jurisdictions offer further tax breaks to 501(c)(3) organizations, such as exemptions from property, sales, and employment taxes.
- Access to Grants and Funding: Many foundations and government agencies only award grants to 501(c)(3) organizations.
- Increased Credibility: It can enhance the organization’s legitimacy in the eyes of potential donors and the public.
How to File Form 1023 for Federal Tax Exemption
To apply for 501(c)(3) status, most organizations need to file Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, with the IRS. This form is extensive and requires detailed information about your organization, including its purpose, finances, governance structure, operations, and more. Smaller nonprofits may be eligible to file Form 1023-EZ, a simplified version of the application.
The application process involves:
- Prepare Your Application: Collect the required information about your organization’s activities, governance, finances, and more. You’ll need to provide your organization’s articles of incorporation and bylaws, a detailed narrative of your activities, a list of your officers, directors, and key employees, your financial data, and other information.
- Submit Your Application: Submit the completed Form 1023 or Form 1023-EZ to the IRS, along with the required attachments and user fee.
- Respond to Any IRS Inquiries: The IRS may contact you for additional information or clarification. It’s important to respond promptly and fully to these inquiries.
Due to the complexity of Form 1023, it’s often beneficial to seek legal advice or guidance from a professional experienced in nonprofit tax law.
How to Apply for State Tax Exemption in Pennsylvania
After obtaining federal tax-exempt status, you can apply for state tax exemptions in Pennsylvania. The specific exemptions available and the process for obtaining them vary by state. In Pennsylvania, some potential tax exemptions include sales tax, property tax, and franchise tax exemptions.
The Pennsylvania Department of Revenue oversees state tax exemptions, and applications are typically filed with this agency. Specific requirements and procedures can be found on their website. Some local jurisdictions in Pennsylvania may also offer additional tax benefits to nonprofits, so it’s worthwhile to investigate these opportunities as well.
Navigating the tax-exempt application process can be intricate, as it involves a deep understanding of both federal and state tax laws. To guarantee your organization adheres to all legalities and optimizes its tax benefits, consulting with a specialist attorney or tax professional with nonprofit expertise would be advantageous.
9 – Obtain Necessary Licenses and Permits
After obtaining your federal and state tax-exempt statuses, you’ll need to ensure your nonprofit complies with all local licensing and permitting requirements. This often means obtaining necessary licenses and permits at the state, county, and city levels. The specific licenses and permits your nonprofit will need depends on the nature of its activities and where it operates.
Common Licenses and Permits Needed by Nonprofits in Pennsylvania
Here are some common licenses and permits nonprofits in Pennsylvania may need:
- Charitable Solicitation Registration: The Pennsylvania Solicitation of Funds for Charitable Purposes Act has clear rules. It requires most nonprofits to register with the Pennsylvania Department of State’s Bureau of Corporations and Charitable Organizations. This applies whether they solicit donations directly or indirectly from Pennsylvania residents, irrespective of the nonprofit’s base. It’s crucial to complete this registration before initiating any fundraising activities.
- Business License: Some cities or counties in Pennsylvania require nonprofits to obtain a business license or permit to operate.
- Special Event Permit: Your nonprofit may need a special event permit if it plans to host activities like parades, festivals, or races. You can obtain this permit from the city or county where the event will take place.
- Building Permit: Your nonprofit may need to obtain a building permit if it plans to construct or significantly alter a building. This is typically available from the local building or zoning department.
- Health Permits: If your nonprofit prepares or serves food, operates a daycare, or provides certain types of healthcare services, you might need a health permit from the Pennsylvania Department of Health or the local health department.
- Sales Tax Exemption Certificate: While nonprofits in Pennsylvania are generally exempt from sales tax, you may need to apply for a Sales Tax Exemption Certificate from the Pennsylvania Department of Revenue.
How to Apply for These Licenses and Permits
The process for applying for licenses and permits varies depending on the specific license or permit. In general, you’ll need to:
- Identify the Necessary Licenses and Permits: Research which licenses and permits your nonprofit needs based on the nature of its activities and where it operates. Local government websites and the Pennsylvania Department of State’s website are good starting points.
- Complete the Application: Fill out the necessary application forms. This typically involves providing information about your nonprofit and its activities.
- Submit the Application: Submit the application to the appropriate government agency, along with any required supporting documentation and fees.
- Respond to Any Inquiries: The agency may contact you with questions or requests for additional information. Respond promptly and fully to these inquiries.
- Maintain Compliance: After receiving a license or permit, comply with any reporting requirements and renew the license or permit as necessary.
Remember, it’s crucial that your nonprofit obtains all necessary licenses and permits before starting its operations. Operating without the necessary licenses and permits can lead to fines, penalties, and possibly jeopardize your nonprofit’s tax-exempt status. It’s often beneficial to seek legal counsel or a nonprofit consultant’s advice to ensure your nonprofit meets all licensing and permitting requirements.
Starting a nonprofit in Pennsylvania is a rewarding but complex process. It requires careful attention to each step from defining your mission to obtaining necessary licenses and permits. By diligently following the guidelines outlined above, you can create a solid foundation for your organization and its mission.