How to Start a Nonprofit: 3 Types of Nonprofit Organizations

A nonprofit organization (NPO) is an institution that aims to offer a public social benefit or service rather than generate revenue for its owners. Nonprofits operate under a non-distribution constraint—a basic requirement that any money they make after paying expenses is used to fund the organization’s mission rather than enrich private parties (like shareholders or investors). Many nonprofits apply for tax-exempt status, which doesn’t require them to pay federal income tax and allows tax deductions for charitable donations, though this is not a requirement.

Common examples of nonprofit organizations include social clubs, political organizations, schools, churches, public charities, and humanitarian programs.

In the United States, there are more than 25 tax-exempt nonprofit statuses, according to the internal revenue code of the Internal Revenue Service (IRS). Here are a few of the most common:

1. 1. 501(c)(3): By far the most common type of nonprofit organization, 501(c)(3) organizations include any organization that serves a charitable, religious, educational, scientific, or literary purpose. The majority of 501c3 organizations are public charities, private foundations, and private operating foundations, but non-profit corporations, trusts, and limited liability companies, or LLCs, may qualify for 501c3 status. 501(c)(3) organizations are not allowed to participate in political campaigns.
2. 2. 501(c)(4): Organizations that fall under this designation include social advocacy groups and social welfare organizations like homeowners associations, veterans organizations, and civics leagues. 501(c)(4) organizations are allowed to participate in political activities, including lobbying and campaigning, so long as it pertains to social welfare.
3. 3. 501(c)(7): These organizations include social clubs organized for pleasure, recreation, or another nonprofitable purpose. 501(c)(7) organizations offer limited membership based on geography, religion, or sports affiliation and are allowed to collect membership fees to keep the organization afloat. According to the IRS, organizations with this designation cannot discriminate based on race, color, or religion.

Starting a nonprofit is a complex job—here’s a guide to help with the most important steps:

1. 1. Develop your organization plan. Before you determine your organization’s ideal legal status, you first need to have a detailed business plan that breaks down its operations. This strategic plan should include a mission statement, business name, structure, operating costs, revenue stream, marketing strategy, startup process, and distinguishing feature that sets it apart from existing organizations. Check out this step-by-step guide for developing a strategic plan for your organization or small business.
2. 2. Decide which status is right for your organization. After you know more about your organization’s makeup, it’s time to consider the most suitable legal status for it. The benefits of a nonprofit are that you can apply for tax exemption status and will be eligible for special nonprofit grants and charitable funding. However, a nonprofit must invest any proceeds beyond operating costs (like paying staff and funding programs) back into the organization rather than going into your pocket—if you want to make significant profits, then a for-profit business may be the better option.
3. 3. Recruit board members. Every nonprofit needs a board of directors to register, made up of at least a leader, secretary, and treasurer. Board members are different from staff members—board members are usually unpaid and oversee staff and strategic operations, while staff members do the day-to-day work of the nonprofit and may be paid. When interviewing and selecting nonprofit board members, look for people with different expertise, without conflicts of interest, and enough time and energy to devote to the organization. Many US states require a list of board members before you can officially incorporate; check your state’s website for further information.
4. 4. Incorporate. Before you can apply for 501(c) status, you need to register your organization as a corporation (or, more rarely, as an association or trust) with the US Secretary of State, called “incorporating.” The application will require the name of your organization, a legal document called the “articles of incorporation” (detailing the organization’s basic structure), and your organization’s bylaws (or the rules determining how the organization will be run). You’ll also need to pay a fee, which varies by state. It is recommended that you seek legal advice from an attorney to help with the incorporation paperwork, though there are also free templates available online.
5. 5. File for your EIN. Whether for-profit or in the nonprofit sector, every organization needs an employer identification number (EIN) to be recognized by the US government; it’s essentially a social security number for your organization. You can file for an EIN for free online through the IRS website. An EIN allows you to open a bank account for your nonprofit startup.
6. 6. File for 501(c) status. Once your organization is officially registered through the government, you can file for one of the many types of 501(c) status, which will designate your organization as a tax-exempt organization. You’ll use the IRS’s 1023 form (or the expedited 1023-EZ form if you qualify). The application will require several documents, including your organizational structure and activities, and a filing fee for using the 1023 form or the 1023-EZ form. It is recommended that an attorney help with this paperwork.
7. 7. File with your state. Most US states require nonprofit corporations to file for charitable organization status through the attorney general’s office before solicitation—check your state website before you begin fundraising.
8. 8. Begin operations. Once the IRS approves your filing for 501(c) status, you’re officially a nonprofit organization. Now you can begin your operations to fulfill your nonprofit mission, including marketing, setting up programs, building your online or community presence, starting fundraisers, hiring staff, and submitting grant applications.
9. 9. Stay compliant. To maintain your 501(c) status every year, you’ll need to file the IRS form 990 annually and continue operating within your bylaws.

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