Nonprofits allow individuals to provide tangible and lasting positive change in their community. Because of nonprofits’ potential impact, it's no wonder that there were more than 1.8 million registered nonprofits in 2022. This article will discuss nonprofit organization policies and the steps toward creating one.
Policies and Regulations
When creating a nonprofit organization, you must have governance policies in place. The IRS (Internal Revenue Service) encourages nonprofits to adopt these policies, as organizations that do are less likely to be audited. Form 990, the annual information return used by larger nonprofits, asks if your organization has adopted the following policies.
Conflict of Interest Policy
A conflict of interest policy sets out guidelines for board members, staff, and volunteers on handling situations where their personal interests could conflict with their duties as representatives of the organization. This type of policy is essential for any organization that wants to maintain ethical standards. For example, this policy can help prevent a board member from taking advantage of the organization’s resources or using their position for personal gain.
Whistleblower Protection Policy
A whistleblower protection policy helps protect individuals who report unethical or illegal activities within an organization from repercussions or retaliation. This type of policy sets out procedures for reporting such activities in a confidential manner, including how to contact authorities if necessary. This policy will outline the required steps if someone retaliates against an employee making such reports.
Document Retention and Destruction Policy
This policy establishes guidelines on which documents the organization must keep and which to destroy after a certain period has elapsed. Establishing such procedures helps organizations keep relevant documents and avoid unnecessary clutter.
Gift Acceptance Policy
A gift acceptance policy sets out guidelines for accepting donations from individuals or organizations who wish to support your cause financially. Such guidelines include criteria for conducting due diligence before accepting contributions, procedures for accepting donations online, rules regarding anonymous donations, protocols for handling sensitive donor information, and more. This policy will help you avoid any potential legal issues associated with accepting gifts from donors.
Joint Venture Policy
A joint venture policy outlines how any joint venture, where two or more parties create a business entity together, will be handled in an organization. It’s essential to establish this policy up front so that everyone involved understands how these agreements will be managed, including how to divide profits and what measures to take if either party violates any terms outlined in the contract. This policy also helps protect the nonprofit from potential liabilities arising from joint venture activity.
Chapter, Branch, and Affiliate Policies
Nonprofit organizations with multiple chapters or affiliates should have a policy outlining their relationship with each one, including claims of authority and the decision-making process. Again, this type of policy helps promote transparency within an organization since it outlines who is responsible for making decisions on behalf of each branch or affiliate.
These are the policies you’ll need to put in place to protect yourself, your organization, and those who work with you from potential legal issues down the line. Now, let’s look at the steps to creating a nonprofit organization.
How to Form a Nonprofit
Here are eight steps to help get you started on the right track when forming a 501(c)(3) nonprofit corporation.
Step 1: Choose a Name
The first step in forming your nonprofit is choosing a name. The name should reflect your mission or purpose and speak to potential donors and members of your organization. Be sure to check with your state’s Secretary of State office for the availability of a name before moving forward.
Step 2: File Articles of Incorporation
Next, you must file the Articles of Incorporation with your state’s Secretary of State office. This document will include information about your nonprofit, including its name, address, and purpose. It may also list the names of your directors and officers and other details about how the organization will be run. In most states, there is a filing fee associated with this step which can range from $50-$200 depending on the state and type of filing required.
Step 3: Create Bylaws
Now, you’re ready to create bylaws for your organization that outline how it will operate internally. These bylaws should specify details such as conducting board meetings, voting procedures, and what approaches to follow when making decisions or changes within the organization.
Step 4: Appoint Directors
Next, you must appoint directors who oversee day-to-day operations and ensure that all legal requirements are met. Each director should understand their responsibilities before taking office, so they know what to expect during their term on the board.
Step 5: Obtain Tax-Exempt Status
To obtain tax-exempt status from the IRS, you must submit Form 1023 or Form 1024. The form outlines information about your nonprofit, including its purpose and activities, and also contains financial information about donations received or expected income sources.
Step 6: Apply for Federal Tax ID Number
Next, you must apply for a Federal Tax ID number (also known as an Employer Identification Number). This number is necessary to open bank accounts in your nonprofit's name and apply for grants or other funding sources.
Step 7: Open Bank Accounts
Finally, it’s time to open bank accounts and start accepting supporters' donations. You will also need these bank accounts to manage funds related to operations, such as payroll expenses or purchasing supplies and equipment you’ll need.
Step 8: Promote Your Mission
Now that all legal paperwork has been taken care of, it’s time to start promoting your mission! Utilize social media platforms like Twitter, Instagram, and Facebook to organize events like fundraisers or volunteer opportunities.
Forming a nonprofit organization requires dedication and hard work. By understanding the policies and formation of a nonprofit, you will be able to reach your goals.