Thursday, August 16, 2012

Don't Forget! You Need to Incorporate Your Nonprofit and Develp the Rules of Engagement

In the process of forming an organization, you will be required to file Articles of Incorporation with the appropriate State agency.  For example, if you live in Florida you will be required to submit your forms to the Department of State, Division of Corporations.  Articles of Incorporation provide your state with information about your business, such as its name, the names of the persons organizing the business and the purpose of the business.  Forming a corporation also limits the liability of the owner(s) and staff of the organization, as well as its board members.  The rules for incorporating your organization may be different depending on which state your business will operate in.  Be sure you know the rules before you “set up shop”.

I learned this the hard way.  Some years ago, I was a member of the Board of Directors of an organization that did not research, and ultimately did not file the required documents necessary to protect all parties involved.  Granted, some paperwork was filed, but it wasn’t enough to protect the organization.  As a result, although the organization was operating as a nonprofit, it legally did not have the rights of a nonprofit.  This later resulted in the organization being caught up in an IRS nightmare.  Fortunately, today that organization has settled all of its debt with the IRS, but, at what cost?

Another requirement for setting up your nonprofit organization is to develop its bylaws.  The bylaws stipulate how the organization will operate.  It is essentially an agreement between the nonprofit and its owners detailing the “rules” of running the organization.  As this is a binding contract, bylaws should be approved by the Board of Directors.  Bylaws are not a requirement for filing your 501(c)3, but it is in your best interest to have one prepared – before you start your business. 

Again, you must plan the whole process of starting your nonprofit.  Some documents are mandated by law, while others are required to ensure your organization’s success.  I suggest preparing a checklist of all the required items and a realistic timeline.  Check each item off as you go through the process.  Not only will you be motivated when you see how much work you’re getting done.  But, this process also helps you see the separate pieces of the puzzle as a whole – the BIG picture.

 So, step #4 when starting a nonprofit organization is to create and file the Articles of Incorporation and the bylaws.

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