I meet with a lot of people who have plans to start a charity. Usually they're really excited about getting down to work. Sometimes they've even started the process by filing their Articles of Incorporations or drafting some bylaws. They don't do this because they're all pumped to do a bunch of paperwork, though. No, most of the time they're thinking, “We just gotta get incorporation out of the way, and then we can get down to the real work.”
You know what, I understand that mindset. Most people don't start a nonprofit because they just LOVE the paperwork, right? They have this great idea, they believe it can work, and they want to make it a reality. They want to make a difference, and all these steps and expenses are a necessary evil to getting there.
But in my experience, that mindset isn't going to take founders very far. The reality is, starting and running a nonprofit is more than just the mission-driven work. You're running a business, at the end of the day.
Trust me, taking the time to understand the organizing documents, the Articles of Incorporation and the Bylaws, will help the organization going forward. It sets a professional tone for the future, and it sets up the new org for success.
So, without further ado – here's some Nonprofit Paperwork 101!
The Articles of Incorporation
The Articles of Incorporation is the first document you file when you're ready to kick off the process of starting a nonprofit. This is the document is filed with your Secretary of State, and it incorporates the business. Seems pretty intuitive, right?
Think of it as the organization’s Declaration of Independence. The Articles declare the nonprofit’s existence, how it’s organized, and what its purpose is. It gives us the 10,000-foot view of the nonprofit’s guiding principles – the most important being the exempt purpose.
In the Articles, you draft a purpose statement that should capture what you’re setting out to do and why. It should be true to the mission while also remaining broad enough for the organization to grow and evolve.
The purpose statement also matters if you're hoping to apply for tax exemption from the IRS (which most nonprofits are going to want to do). You'll want to pay attention to how it's drafted—the IRS looks to it when deciding whether to grant the nonprofit tax exemption. The IRS likes to see that you're operating for the right kind of purpose (charitable, educational, religious, scientific, etc.).
And here's a pro-tip for hopeful nonprofit founders out there – the "purpose statement" that's provided in sample forms or given out by document filing companies isn't enough to pass muster for tax exemption.
The other major foundational document for a nonprofit is the bylaws. If the Articles give us the what, the bylaws tell us the how—the how of governance, I mean. The bylaws is a long document that gives you all the tools at the board’s disposal for how to run the organization. It’s the board's playbook.
A good set of bylaws will tell you how to conduct board meetings, how to elect officers, how to remove a board member, how to make decisions via a vote—ALL of the things. When chaos strikes (What if the president resigns? What if we need to call a special board meeting? Can all of our members vote?), the bylaws are there to help!
If they're done right, the bylaws should have top-level instructions (that are compliant with your state's statutes) about the situations you might find yourself in. They aren't supposed to be all encompassing – you'd end up revising them constantly. Policies can and should be drafted to fill in the gaps, since those are easier to change as the nonprofit grows and evolves.
In reality, it's hard to know what should be in the bylaws and what shouldn't be. Grabbing a sample off the internet isn't great either—how are you supposed to know whether they're compliant with the laws in your state? That's why you should get help from a professional rather than trying to draft them on your own.\
Like I said, actually understanding your incorporating documents REALLY helps nonprofits run more professionally.
If you know where your exempt purpose statement is, you can make sure your activities fall under it, even if your programs change over time. If you know what kinds of things are in your bylaws, you’ll find information about how to run the nonprofit even when things get sticky.
Don’t get these documents in place and forget about them. And don’t grab some samples off of the internet and just cross your fingers. The Articles of Incorporation and the bylaws might feel like steps that founders can just breeze through to get to the *important* work, but trust me. No matter the size of the nonprofit, these documents are important.
Jess Birken is the owner of Birken Law Office, a firm designed to help nonprofits. Ideal Client Engagements are nonprofits looking for a strategic partner who will give pragmatic advice and keep business operations on track so the mission work stays a priority.
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