STARTING & MANAGING A NONPROFIT ORGANIZATION

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Checklist for Starting and Managing a Nonprofit Organization

  1. What should be the form of the organization?
    1. Why?
    2. In what jurisdiction should it be formed?
  2. Who should be its directors and officers?
    1. Why?
    2. What about their personal liability?
    3. Should there be employees?
    4. Should there be consultants?
    5. Should there be compensation arrangements?
  3. What will be the organization's programs?
    1. Will they  be related? or unrelated?
  4. How will the organization achieve its' goals at the community level?
    1. What will be the criteria for its members?
  5. How can the organization be exempt from Federal and State Taxation?
  6. How will it be funded?
    1. By gifts?
    2. By grants?
  7. Will it be public or private?
  8. To what extent will the gifts be deductible?
  9. What reports must be filed with Federal and State agencies?
  10. What are the state law fund-raising requirements?
  11. Should the organization engage in lobbying or political campaign activities?
  12. How many directors does the organization have?
    1. What are their voting rights?
    2. How is a quorum ascertained?
    3. How is notice properly given?
    4. What is the length and number of their terms of office?
  13. What officers are in organization?
    1. What are their duties?
    2. What is the length and terms of office?
    3. Can more than one office be held by the same individual?
  14. How frequent must the governing board meet?
    1. Will they meet in person?
    2. Can board members vote by mail or unanimous consent?
    3. Can they use proxies?
  15. What are members rights? 
    1. When must they meet?
    2. What notice of the meetings must be given?
    3. How can they vote?
    4. What issues must be decided by members?  By directors?
    5. May there be an executive committee of the governing board?
    6. Duties?
    7. What limitations are there on its functions?
  16. What about an advisory committee?
    1. Which are standing committees?
  17. How are the organization's governing instruments amended?
  18. What is the process for dissolving the organization?
    1. For distributing its assets and net income upon dissolution?

Developing a Corporate Form

A nonprofit organization that is a corporation is formed by preparing and filing articles of incorporation, with its operating rules embodied in bylaws.  Bylaws of an incorporated nonprofit organization will include provisions with respect to:

  1. It's purpose to restate them in bylaws
  2. The election and duties of it's directors
  3. The election and duties of officers
  4. The role of members
  5. Meetings of members and directors including dates, notice, quorum, and voting
  6. The role of executive and other committees

No one person "owns" a nonprofit organization.  A membership may control the organization without owning it..  The board of directors of a nonprofit organization controls the organization, notwithstanding the presence of a membership.  This matter of selection of directors and control of such organization is of particular consequence in the case of a single-purpose organization that is started by one individual or a close-knit group of individuals.

The dilemma is the individuals who launched the organization do not want to put their dollars into the organization, only to watch others assume control over it.  They these founders are usually desirous of having a "representative" governing board which would clearly put them in a minority, without control.  One solution to this may be an advisory committee.  This is a group of individuals who do not substitute for the board of directors but who provide technical input as to the programs of the organization.  The advisory committee has not voting rights so it doesn't matter how many individuals are on board.  Such a committee allows individuals to serve without the potential of incurring the type of personal liability that may accrue to directors and officers and without incurring the larger set of responsibilities held by the directors.  An advisory committee further enables an organization to surround itself with prominent names in the field.    

An organization needs insurance to shift the risk of liability to an independent third party instead of to the individuals involved in the organization and also personal liability insurance.

 

 

 

Officers, Bylaws, Minutes and Identification Numbers

Officers are to be elected by members and/or board of directors or a membership elects the directors and the directors elect the officers.  A self-perpetuating board elects the officers.
 
Bylaws are the governing instruments of the organization.  They identify the offices of the organization, state the duties and responsibilities of the officers, provide for the manner of their selection, state the terms of office, address the matter of re-elections to office, and so forth. 
 
Organizational Minutes should reflect the following:
  1. Adoption of bylaws
  2. Election of officers
  3. Passage of resolutions
  4. Selecting legal counsel, an accountant, and a fund-raising consultant
  5. Authorizing reimbursement of expenses incurred in establishing the entity
  6. Discussion of program activities
  7. Development of the fund-raising program

Minutes should be kept in a minute book, along with articles of organization and bylaws.

Every nonprofit organization must have an identification number assigned by the IRS and is acquired by filing a Form SS-4.  This form may be filed as soon as the entity is formed or with the application for recognition of tax-exempt status.