“Oh, it’s really easy to start a nonprofit. I can show you how.”

I don’t know how often someone has told me that. My (mental) response was always, “You’re talking about the legal paperwork. But a nonprofit is the vision, the people, and the program.” So I opted for fiscal sponsorship — working as a project under the umbrella of an existing nonprofit — while we got our act together.

Well, we have our act together. Now, we’ve done the legal paperwork. It wasn’t “really easy.”

We found this 111-page guide from the California Attorney General’s Office to be the most useful. Here’s a rundown of our experience with the 11 steps they outline.

1. Choose a corporate name

EASY

“Creative Crisis Leadership” has been working for us (since 2014!), is gaining recognition, and reflects many of our values and goals. Good enough for now.

2. Draft the bylaws of the corporation

DECEPTIVELY STRAIGHT-FORWARD

On the one hand, there are plenty of templates and examples that would only need a bit of editing to satisfy legal requirements. On the other hand, this is our defining document. We took this as an opportunity to consider our governance, operations, and decision-making structures carefully.

Part 2 of the California Corporate Code contains default bylaws for a California nonprofit. Using this as a legal guideline, we drew on examples and recommendations from experts and other nonprofits to add clauses relating to roles and responsibilities and governance processes.

You can find our Bylaws here.

3. Hold the first meeting of directors

EASY

We’d been already been meeting regularly, so this was a matter of declaring a formal meeting to approve Bylaws and appoint Officers.

4. Draft and file articles of incorporation with the Secretary of State (CA SoS)

SUPER-EASY

California has a very short online application. We only needed to fill in names and addresses, copy two sentences from our bylaws, check a few checkboxes, and provide credit card information for the $30 fee.

5. Draft an action of incorporator and have it signed by all incorporators

N/A

All three board members were incorporators from the outset, so we didn’t have to do this.

6. File an application for a federal Employer Identification Number with the IRS (IRS)

SUPER-EASY

Short online application requiring name and address, and the Articles of Incorporation from Step 4.

7. File a Statement of Information with the Secretary of State (CA SoS)

SUPER-EASY

Short online application requiring a name and address, and answering a few multiple choice questions.

8. File application for tax exemption with the IRS (IRS)

MONSTER IN THE BASEMENT!

Officially known as “Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,” this is an online application only. Fortunately, you can download it as a PDF for draft purposes. Unfortunately, the version that comes up from the IRS site when you search on “form 1023” doesn’t match the online form. So we wasted a substantial amount of time trying to formulate replies to questions that aren’t in the current version. (For instance, asking for specifics of employee compensation — something we can only fantasize about, at this time.)

We also spent an appreciable amount of time ensuring that we presented a clear and understandable vision of what we are about and what we do. This had to be specific enough for the IRS to approve, yet general enough that we won’t have to re-file as we evolve and expand. You can see our mission and activities statement here.

While optional, we consistently heard a strong recommendation to include a Conflict of Interest Policy in the submission. So we took the time to develop one. Like the Bylaws, we based this on examples and recommendations from experts and other nonprofits. You can see our Conflict of Interest Policy here.

All through the form, there were legal terms that we we had to familiarize ourselves with so that we could provide correct answers. And, perhaps more importantly, so we could make the best decisions for our future.

Finally, when we had a complete draft, including attachments, ready, had a knowledgeable lawyer review it. Good thing: We had made one significant mistake related to reporting past financials. Thank you, Alexis B. Levy!

9. Register with the Attorney General’s Registry of Charitable Trusts (CA DoJ)

MOSTLY EASY

This entailed filling out a short form and paying the $50 fee. The tricky part was that it was a paper form and pay-by-check only. So, not only digging into analog technology, but finding an envelope, a stamp, and a post office!

10. File application for tax exemption with California Franchise Tax Board (CA FTB)

MOSTLY EASY

it identical to step 9 except there was no fee. So no physical check. But still an envelope, a stamp, and a post office.

11. Determine whether there are any additional permits, licensing, or registration requirements at the local, state, or federal level, and establish procedures to ensure satisfaction of ongoing filing requirements

TBD

We’re working on it.

 

All in all, we found it to be a long and tortuous process. But by doing it ourselves rather than having a lawyer handle it for us, we accomplished much more than saving thousands of dollars. The clarity and consensus we developed around long-term vision and key operational procedures are already speeding our efforts along. Equally importantly, we are now confident that we understand our legal obligations and feel well-prepared to meet them.

So there you have it, why “starting a nonprofit” isn’t “really easy.”

 

P.S. If you’re thinking of starting your own nonprofit, DON’T. There are easier alternatives. If you still want to do it, and would like our advice, get in touch.