How To Start a Non-Profit

Thinking of starting a nonprofit? This page should help you think through your nonprofit idea and
understand the process and options for becoming a nonprofit in North Carolina. 

The information provided herein does not constitute legal advice. Please 
consult a lawyer for individual advice on issues raised below. 

Thanks to Quianna Lewis, Elon JD/MBA and Ryan Fairchild of Odin Law & Media for their many volunteer
hours of research, writing and editing required to create this resource

What to think about when thinking about starting a nonprofit. 

Before starting a new nonprofit organization, there are many aspects to consider. The first is whether your mission is unique and clear enough to become a sustainable nonprofit that others will want to support. Second, you need to decide if a nonprofit is the best form for the mission you want to accomplish. 

(Click the plus signs below to learn more)

    • What is my organization’s mission? What societal issue am I trying to address? Make sure that it is clear and concise. Is there a “rallying cry” that will make people want to volunteer, fund or otherwise support this work?

    • Your next step should be to research whether there is any other nonprofit already working on or close to the mission you have in mind? Have you talked to those organizations about taking on your idea as a project?

    • Who is the target group that my organization will impact? Are they around the table? Have you included them in my planning?

    • How will I accomplish my mission? What are the steps to do the work and who will do them?

    • How will I pay for the programs and services we administer and the staff to accomplish the work? Who will financially support this work?

    • Where will we accomplish our mission? Is it a local community initiative, a state or regional initiative, or national/international in scope?​

  • Although a nonprofit may be the best option to pursue your mission, another business form could be better. Below, we review available business structures. Click here to see more information.

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    Nonprofit Corporations

    A nonprofit is most commonly a corporation organized and operated for a collective, public or social benefit. Like any corporation, a nonprofit can make a profit. Unlike a for-profit, all money a nonprofits earns must be used towards the organization’s purpose and cannot benefit the owners or directors.

    Pros:

    • Nonprofits are exempt from taxes

    • Organizations that apply for and obtain federal 501(c)(3) status (see below)may qualify more easily for public and private grants and receive tax-deductible donations

    Cons:

    • Nonprofits still have to raise their own capital, through donations, grants or earned income

    • Nonprofits are subject to strict disclosure and spending requirements

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    For-profit Entities

    While for-profit entities may have any number of goals, their primary duties are to their owners. Here is a helpful review of various for-profit entity options. The NC Secretary of State also provides this helpful comparison chart.

  • Triangle Artworks provides a fiscal sponsorship program. To learn more click here.

    Fiscal sponsorship is an option that may be available to a person, group, or business to allow access to tax-deductible funding or grants without becoming a 501(c)(3) nonprofit. A fiscal sponsor is essentially a nonprofit organization with 501(c)(3) status that commits to partnering with an unregistered legal entity. Different models of fiscal sponsorship include:- Comprehensive (referred to as “Model A”), and Pre-approved grant relationship (referred to as “Model C”), in which the project is run by a separate entity funded by the fiscal sponsor. Learn more about Fiscal Sponsorship models here.

    A Fiscal Sponsor might be right for you if:

    • You have a public benefit event/activity that has a short timeframe or there is an immediate charitable need, but you don’t have the time or resources to become a fully registered tax-exempt organization.

    • You are a start-up cause, looking to gain momentum and get your feet wet before fully registering.

    • You are being gifted money for charitable work you do and wish to be able to provide tax receipts to your donors.

    Pros:

    • Your organization will be able to offer tax-deductibility to your donors and have access to more grants. Many grants require 501(c)(3) nonprofit status, but a growing number of grants are allowing fiscally sponsored projects or organizations to apply.

    • You can get technical assistance and support - Nonprofit organizations that offer fiscal sponsorship as part of their programming models often include administrative and technical support alongside their partnership. Your organization may have to pay a small fee.

    Cons:

    • A good fiscal sponsor can be difficult to find. Having a 501(c)(3) status is the only real criteria a nonprofit organization needs to have to serve as a fiscal sponsor. Unfortunately, this does not ensure that an organization has the capacity or knowledge to execute an effective partnership, so do your research.

    • A nonprofit can outgrow a fiscal sponsorship.

    For lots more information, check out the national network of fiscal sponsors and Models of Fiscal Sponsorship. Triangle ArtWorks now offers Model C fiscal sponsorships.

Becoming a Nonprofit in North Carolina 

If you decide to form a nonprofit, here are the basic steps you need to know.

  • STEP ONE - Become a legal entity in North Carolina. 

    Becoming a nonprofit corporation in NC

  • The name must be available and following NC’s naming conventions.. Here is a link for the North Carolina Secretary of State - Business Registration Division where you can check name availability.

  • A registered agent is responsible for receiving legal notices on behalf of your organization. The appointed registered agent must be physically located in the state and maintain an office, open during regular business hours. You can serve as the organization's registered agent or appoint a service provider to do so.

  • Your nonprofit’s articles of incorporation act as the charter for your organization. The NC secretary of state provides a form to create this document, as well as specific instructions.

  • After you have received a filed copy of your articles of incorporation, you may apply for an EIN from the Internal Revenue Service (IRS). Your EIN identifies your nonprofit for tax purposes. For online filing you can head to the IRS website. For even more guidance, the IRS website also has a detailed article about EIN numbers.

  • Your bylaws are the governing document for your nonprofit. They serve as your organization’s rulebook and should be consistent with the law and your articles of incorporation. They are even more important in a nonprofit than a for-profit because there are no shareholders in a nonprofit. You will also want to develop and adopt your conflict of interest policy.

  • This meeting sets forth the initial governing actions and aims of your organization. Your first meeting of the Board of Directors can also be done without a meeting, per North Carolina law and if allowed by your bylaws.

  • The NC Secretary of State automatically notifies the NC Department of Revenue of incorporation. The Department of Revenue sends you a https://www.ncdor.govsix-part questionnaire (Form CD-345) to be used for determination of tax status in regards to corporate and franchise taxes.

  • Before you can begin asking for donations for your nonprofit, in North Carolina, you must obtain a Charitable Solicitation License or an exemption from this License. Know that, even if you meet one of the exemptions you have to apply for and be found exempt, before you can start fundraising. You may want to undertake this step after obtaining your tax-exempt status from the IRS (see below).

  • STEP TWO - Becoming a IRS  501(c)(3) tax-exempt organization under Section 501(c)(3) of the Federal Tax Code

  • Use Form 1023-EZ if possible to apply for recognition as a tax-exempt organization under Section 501(c)(3). Use the Form 1023-EZ Eligibility Worksheet (on Page 13 of the 1023-EZ form) to determine if you can use the 1023-EZ or if you’ll need to use the full 1023 form. To get the most out of your tax-exempt status, you'll want to file your Form 1023 (regardless of type) within 27 months of the date you file your nonprofit articles of incorporation. If you file within this time period, your nonprofit’s tax exemption takes effect on the date you filed your articles of incorporation (and all donations received from the point of incorporation onward will be tax-deductible). You do not have to hire an attorney to fill out this application, but it can certainly help.

  • Also, a 501(c)(3) is not the only type of nonprofit, just the most common. Before you apply, check whether another type of nonprofit might better apply to your work. Here is a helpful article.

  • It can take six or more months to hear back from the IRS on your application and even then the IRS will sometimes reject your application. You will be given an opportunity to provide additional information within a set time.

  • When you receive a Letter of Determination from the IRS stating that you have been granted IRS Tax Exemption status, be sure to save the letter. Make a pdf of it and keep it handy. You will be repeatedly asked for a copy of this letter and the date of your tax-exempt determination in grants and other filings.

Other things to think about when operating a nonprofit in NC:

Employees - When you have at least four full or part-time employees working a total of 20 weeks in a calendar year, you will need to  file with the N.C. Employment Security Commission to pay unemployment taxes. Follow all state and federal laws related to employment, including I-9, W-2, and W-4 forms; withholding taxes; and posting all compliance posters.

Insurance - All nonprofits should carry insurance. Having Directors and Officers Insurance protects those directors and officers from liability and makes it easier to recruit them. Comprehensive General Liability and other policies protect your organization from the risk of liability for errors, omissions, injury, etc. And many contracts or grants require that you carry a certain level of insurance. Here is a helpful  discussion of various risks and policies. Consider speaking with an insurance broker.

Other licenses and permits - Depending on what work your organization is doing, there may be other licenses and permits required. Some are listed here or you can contact the Small Business Advisors at NCEDP for help on this issue. 

Ongoing Requirements  

  • File your taxes - Any nonprofit with annual gross receipts of $25,000 or more must file a Form 990. If an organization normally has gross receipts of $50,000 or less, it must submit Form 990-N (e-postcard). You must refile Form 990 annually within 4.5 months after your fiscal year ends.  

  • Collect sales tax on items sold. If your nonprofit sells retail items, register with the N.C. Department of Revenue for a Certificate of Registration, file the returns, and pay the tax due on a quarterly or monthly basis, depending on your volume of sales. For help, contact the Taxpayer Assistance Division.. 

  • Let the Secretary of State know if you change address/registered agent. When needed, update your principal office address and registered agent with the N.C. Secretary of State. Find a Change of Registered Office/Agent form on the SOS website here.

Other Resources