Prepare and File Your Articles of Incorporation

After the corporate filing office returns a copy of your filed articles, you can submit your federal 501(c)(3) tax exemption application to the IRS. (The IRS requires you to submit a copy of your filed articles with your application.) This is a critical step in the formation of your nonprofit organization since most of the real benefits of being a nonprofit flow from 501(c)(3) tax-exempt status.

To apply for your exemption, you must complete IRS Package 1023, Application for Recognition of Exemption. For instructions on filling out this form, read IRS Publication 557, Tax-Exempt Status for Your Organization. (You can obtain all of these items for free by calling 800-TAX-FORM, or you can download them from the IRS website at www.irs.gov.) If you need a bit of help deciphering the IRS-speak, consider downloading Nolo's plain-English eGuide, Nonprofit Corporations: Tax Exemption.

After the IRS reviews your application, it will send you a letter indicating that it has approved your nonprofit status, or it might ask you for more information about your organization. The IRS can also deny your application outright. If this happens, see a lawyer who specializes in nonprofits. Nolo's Lawyer Directory provides comprehensive profiles of the lawyers who advertise there, including each lawyerâs education, background, areas of expertise, fees, and practice philosophy.

Apply for a State Tax Exemption (If Necessary)

In a few states, you must complete a separate application to get a state tax exemption. In other states, as long as you file nonprofit articles of incorporation and obtain your federal 501(c)(3) tax-exempt status, your state tax exemption will be automatically granted. In still others, to get your state exemption you must send in a copy of the IRS determination letter that granted your federal exemption. Contact your state tax agency to find out what steps you must take.

Draft Corporate Bylaws

Next you must create bylaws, the internal rules that govern your nonprofit corporation. Bylaws contain rules and procedures for holding meetings, voting on issues, and electing directors and officers. To create bylaws, you can either follow the instructions in a self-help resource or hire a lawyer in your state to draft them for you. Typically, the bylaws are adopted by the corporation's directors at their first board meeting.

Appoint Directors

Directors, who meet and make decisions collectively as the board of directors, have the authority (and responsibility) to manage and run the nonprofit corporation. Many states allow nonprofits to have just one director, but other states require at least three.

Hold a Directors' Meeting

The purpose of the first meeting of the board of directors is to conduct the initial business of the corporation and take care of other formalities, such as recording the receipt of federal and state tax exemptions.

The directors should first adopt the bylaws and elect officers -- state law usually requires a president, secretary, and treasurer, and sometimes a vice president as well. Then, the directors should authorize the newly elected officers to take actions necessary to start the business of the nonprofit -- for example, setting up bank accounts and admitting members.

After the meeting is completed, minutes of the meeting should be created and filed in your corporate records book. For more information, see Nolo's article Protecting Your Nonprofit Corporation's Tax-Exempt Status.

Obtain Licenses and Permits

Many businesses, whether operating as for-profit or nonprofit corporations, partnerships, or sole proprietorships, are required to obtain state or local licenses and permits before commencing business. So, while you may not be subject to the kind of red tape that entangles profit-making enterprises, you should check with your state department of consumer affairs (or similar state licensing agency) for information concerning state licensing requirements for your type of organization. For instance, a local business license (sometimes called your tax registration certificate) may be required for your activities, and if you sell anything to consumers, you'll need a sales tax permit.

Getting Started

For practical advice and detailed instructions on starting a nonprofit, see Starting & Building a Nonprofit: A Practical Guide, by Peri Pakroo (Nolo).

Learn how to avoid IRS hassles with Nonprofit Meetings, Minutes & Records: How to Run Your Nonprofit Corporation So You Don't Run Into Trouble, by Anthony Mancuso (Nolo).

See Nolo's Effective Fundraising for Nonprofits: Real-World Strategies That Work, by Ilona Bray, for advice and stories from experienced fundraisers who have found financial support for their missions.

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