The Best Way to Start a Nonprofit
Massachusetts business advisors give their tipsBy Nancy Henderson | Last updated on September 2, 2022
So that charitable cause keeps tugging at your heartstrings and you’re thinking about launching your own nonprofit to help. Great—just know it won’t be easy, say Boston attorneys who handle such matters.
At the end of the day, it is a lot like setting up a for-profit business, says corporate attorney Jane Freedman. “You’ve got a lot of the same concerns, starting with: How are you going to operate it from a financial perspective? Do you have a business plan? How are you going to raise money?”
Before you take the plunge, determine whether you really need to establish your own organization. Is your goal to fill an ongoing gap in existing services or to host a one-time fundraiser? If it’s the latter, it might make more sense to join forces with an existing group.
Sandy Tarrant, of counsel attorney at Casner & Edwards and clinical faculty member at Boston College Law School, gives the example of parents who want to give back to the health care facility that treated their sick child. “If they’re really looking to raise money to support the hospital or the particular doctor or practice, there are usually much easier ways to do that,” she says. “You could work with the development office to host a fundraising event, either on a regular basis or one time. You could associate with another charity.”
Those who still want to forge ahead will need to incorporate by filing the proper documents through the Massachusetts Secretary of State’s office. “A nonprofit corporation is still a corporation,” Tarrant says. “There are no shareholders, but there are directors with fiduciary duties who need to follow and observe corporate formalities, hold meetings, and review and follow the bylaws.”
At a minimum, your board of directors must include a president, a treasurer and a clerk. But too many cooks in the kitchen can make it hard to get things done. Says Freedman: “You probably don’t want to have 30 people on your board of directors. It’s just a little unwieldy.” It’s also wise to create a conflict-of-interest policy to protect voting board members and the organization.
After you incorporate, it’s often beneficial to file for federal tax exemption. Be ready to answer a lot of questions about how funds will be spent, including salaries. Applications must be filed online and the review generally takes several months.
And don’t ask for donations until you receive the determination letter from the IRS. “You don’t want a donor to write you a check and you have to then go back to them and tell them, ‘Don’t file that on your tax return as a deduction because we didn’t get our exemption yet,’” Tarrant says.
Although it’s possible to set up a nonprofit without legal assistance, it can be tricky. “The forms are supposedly designed to be user friendly and able to be completed without an attorney,” says Freedman. “However, I find that at times I need to do a deeper dive into the tax regulations and forms. … Sometimes clients who try to DIY get themselves into a pickle when their documents are not as clean as they should be.”
Freedman also advises clients to hire an accountant who is familiar with nonprofits. “Keeping really good financial and tax records is a big piece of compliance,” she says.
The COVID-19 pandemic has caused many would-be nonprofit organizers to hit the pause button, Tarrant says. “Existing charities are already struggling with fundraising,” she says. “Incomes are down. Everybody’s watching their portfolios. So it’s difficult for a new organization trying to get into the realm in this time, but I’m anticipating that will pick back up.”
Still, she adds, if you don’t feel you should wait, “I say go for it. It’s a great way to contribute to the world.”
For general information on articles of incorporation and articles of organization, State of Massachusetts nonprofits, filing fees, new nonprofit formation, and small businesses, see our overview on business organizations law.
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