Setting up a Nonprofit Organization

A nonprofit organization is a perfect way for you to realize your vision and desire for helping people in your community. Establishing and maintaining a nonprofit organization, however, is no easy feat. Above all, If you are genuinely interested in serving and benefiting your community. So, here is a guide to help you in setting up your nonprofit organization in Colorado.

First things first.

What is a Nonprofit Organization?

A nonprofit organization or NPO is an entity that is granted the tax-exempt status under the Internal Revenue Code Section 501(c)(3). Furthermore, an organization is designated as a nonprofit and given the tax-exempt status when it contributes to the community. It furthers a cause or purpose such as religious, scientific, charitable, education, public safety, or cruelty prevention.

Public charities are divided into groups such as those providing food and shelter, disaster assistance, and care for the disadvantaged, children and the elderly.

Before Starting a Nonprofit

  • Have you done your research? – You should conduct a research to ensure that you are not duplicating a service already existing in the community you want to serve. Prior research will help you determine if you can just form a partnership with an existing organizations or serve as a project under that existing organization rather than create a new one.
  • Do you have a clearly defined mission and programs?- What community needs are you trying to meet? What is the purpose of your organization and what services and programs will you implement to realize your mission? Do you have a broad constituency that embraces your mission and program?
  • Can you ensure the financial sustainability of your organization? – Will your organization be able to withstand the financial challenges including the cost of starting up and day-to-day operations. Do you have a business plan to guide your financial strategies to ensure continuous and stable stream of funds?
  • Who will lead your nonprofit? – You should carefully consider who will sit on your board. Your board members should have the dedication, knowledge, wisdom, and energy as well as the influence to help raise funds for the organization. Ideally, this diverse group of individuals should not be related to you or each other, no strong financial ties to you or each other, and represent the community you are looking to serve.

Now Some Basic Steps for Starting a Nonprofit

1. Select a Name for Your Non-Profit Organization

Naming your organization is the first step in incorporating with the state as well as establishing its brand. Hence the name of your nonprofit corporation must be unique and it cannot be the same as the name of another nonprofit corporation on file with the Colorado Secretary of State. To see if your proposed name is available, you can search Colorado’s business name database at www.sos.state.co.us/pubs/business/main.htm.

2. Develop Your Bylaws

You would need to identify at least one incorporator and director for your nonprofit organization. The incorporator will be the one who will sign the Articles of Incorporation. Furthermore, your directors will make up the governing body of your organization.

You will also need to appoint a registered agent who physically resides in the state and will be responsible for receiving important notices addressed to your nonprofit organization.

Your bylaws must comply with Colorado law and contain the rules and procedures your nonprofit will comply for holding board meetings, and electing officers and directors. Your bylaws do not need to be filed with the Colorado Secretary of State. You may find sample bylaws here: http://www.grantspace.org/Tools/Knowledge-Base/Nonprofit-Management/Establishment/nonprofit-bylaws

3. Select Individuals to Serve on the Board of Directors

  • Hold the first meeting of your board of directors.
  • Your first board meeting is usually treated as the organizational meeting of the board. During this meeting, your board should:
  1. Approve the bylaws
  2. Appoint officers
  • Set an accounting period and tax year, and;
  1. Approve initial transactions of the corporation, such as the opening of a bank account for your nonprofit.
  2. After the meeting is completed, the minutes of the meeting should be created. Also, meeting minutes must be maintained for all subsequent board meetings.

4. Develop Vision and Mission Statements

A vision statement is the “north star” of an organization. Also, a vision statement is what your organization aspires to be. It states your goal and what your organization hopes to accomplish. Likewise, the vision statement should be short and direct, usually no longer than 20 words. An example is, “A world without Alzheimer’s.”

Your mission statement serves as a foundation for your strategy and a guiding principle for all your activities. It is a proclamation of why the organization exists. The mission is an actionable statement. An example is, “Celebrating Animals, Confronting Cruelty.”

5. File Articles of Incorporation

To incorporate, file your nonprofit articles of incorporation with the Colorado Secretary of State office. Your articles of incorporation will register your organization’s name.  Here is a sample: https://www.sos.state.co.us/pubs/business/sampleForms/ARTINC_NPC.pdf

Submit Articles of Incorporation to:

Colorado Secretary of State

Business Division

1560 Broadway,Suite 200

Denver, CO 80202-5169

Information: (303) 894-2200

Fax: (303) 869-4864

Web Site: www.sos.state.co.us

Nonprofit Forms: http://www.sos.state.co.us/pubs/business/forms_main.html#Nonprofit

E-Filing Fee: $50

The incorporation takes 7-10 business days and then the information is available on the state’s website. It is important to note that this Incorporation does not make an organization exempt from income tax.

6. Obtain an Employer Identification Number (EIN)

The Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to identify your organization. In contrast your EIN will be used to open a bank account, to apply for 501(c)(3) status, and to submit 990 returns to the IRS. Apply here for your EIN: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

7. Apply for Colorado State Tax Identification Numbers/Accounts

To apply for a sales tax account and/or wage withholding account, submit Form CR-0100: Colorado Sales Tax Withholding Account Application by mail, in-person, or online.

Colorado Department of Revenue
Website: http://www.colorado.gov/revenue
Fee: $8 for a charitable license. $50 deposit if retail sales tax license needed.
Timeline: 2-3 weeks online. 4-6 weeks by mail. Immediately in-person.

If your organization has employees and withholds income, then you must obtain an unemployment insurance tax account number and rate by filing Form UITL-100: Application for Unemployment Insurance Account and Determination of Employer Liability.

Colorado Department of Labor and Employment
Website: http://www.colorado.gov/cs/Satellite/CDLE-UnempBenefits/CDLE/1240336898069
Filing Method: Mail or online
Fee: $0

8. File for a Federal Tax Exemption

This is also the most time-consuming part of the process. You will need to complete and file IRS Form 1023 or the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Smaller nonprofits, on the other hand, may file form 1023-EZ or the Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code.

Once you have filed your federal tax exemption, you also need to obtain your Colorado state tax exemption.

Small nonprofits are defined as those that:

  • Anticipate less than $50,000 in annual gross receipts each year for the first 3 years, and
  • Have already had less than $50,000 in annual gross receipts for all prior years (if any), and
  • Have total assets values at under $250,000.

If your organization qualifies as a ‘small nonprofit’, you may file form 1023-EZ here:

https://www.pay.gov/public/form/start/62759871

Filing Fee: $275

Processing Time: 90 days

All other organizations must file the traditional Form 1023.

Submit IRS Form 1023, Application for Recognition of Exemption to:

Internal Revenue Service

P.O. Box 12192

Covington, KY 41012-0192

Information: (800) 829-1040

Forms: (800) 829-3676

Web Site: www.irs.gov/charities

Filing Fee: $600

Processing Time: 180 days

The IRS will return an IRS Determination Letter which officially recognizes your exemption. While your Form 1023 is being processed by the IRS, the organization may operate as a tax-exempt organization:

  1. Most organizations are required to file an annual information return (Form 990, Form 900EZ or Form 990PF) or an electronic notice (Form 990N) while their application for exemption is pending.
  2. II.  Donors may contribute to the nonprofit while Form 1023 is pending. However, there is no assurance that their donations are tax-deductible for federal income tax purposes until the application is approved. So, donations made while an application is pending would qualify if the application is approved. Once you receive your IRS Determination Letter, your organization is automatically exempt from Colorado corporate income taxes. Therefore no, follow up is necessary.

9. File for Colorado State Tax Exemption

Colorado nonprofit organizations can apply for state sales tax exemption once they have an IRS determination letter. If approved, the organization will receive a Certificate of Exemption. To file to obtain Exemption form Sales Tax & State-Administered Local Sales Tax, file Form

DR 0715: Application for Sales Tax Exemption and Form DR-0716: Statement of Non-Profit – Church, Synagogue, or Organization.

10. Register as a Charitable Organization with the Colorado Secretary of State

So, before 1) seeking donations, 2) seeking donations in Colorado on its behalf or 3) participating in a charitable sales promotion, charitable organizations must register online with the Colorado Secretary of State, along with any other states in which it plans to solicit funds.

Small organizations are exempt from registering if:

  • There is no intent to solicit and receive and do not actually receive more than $25,000 in donations during a fiscal year.
  • If the organization does not receive contributions from more than 10 people during a fiscal year.
  • Religious organizations that are exempt from filing the IRS 990.
  • Political organizations

All other organizations must register online:

Division of Public Charities

Colorado Secretary of State

Web Site: www.sos.state.co.us or http://www.sos.state.co.us/pubs/charities/charitableHome.html

Filing Fee: $10

Additional Considerations for Starting a Nonprofit

Open a Bank Account and Establish Check Signing Procedures

As with any legal entity that generates revenue and incurs expenses, opening a bank account is an essential step in setting up your nonprofit.

Follow State and Local Non Profit Regulations and Other Requirements

So, you may need to consult with legal counsel to establish: Not only board meeting minute policy and other record-keeping practices,  but also risk management and insurance, contracts and relationship with other parties.

Establish a Payroll System and Procure Necessary Insurance Coverage

Planning to have employees and withhold income?  Then you need to establish a payroll system whether manual or automated.

Establish mandatory requirements like:

  • Workers’ Compensation
  • Unemployment insurance
  • Short-term Disability
  • Auto Liability (if applicable)

Also, get additional insurance coverage:

  • General liability
  • Property
  • Professional responsibility (if applicable)
  • Sexual abuse (if applicable)
  • And non-owned auto liability (if applicable).

Similarly, determine whether Directors & Officers (D&O) liability insurance is also needed.

You must also obtain an unemployment insurance tax account number and rate with the Colorado Department of Labor and Employment.

Finally,

  • Find an office space
  • Recruit your staff
  • Prepare a personal manual
  • Develop an Overall Fundraising Plan

Your fundraising goals should include the amount you need to raise and what the money will be used for. Similarly develop a fundraising plan for each goal, such as generating funds for new projects, new facility, or emergency fund.

Do you need assistance in finding a real estate property for your nonprofit? Get in touch with Rajanikanth Maddhi at 720 5151051 for any real estate advice.

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