Starting a nonprofit requires a qualified purpose, state incorporation, and IRS tax-exempt approval, along with ongoing compliance and proper governance.
Key Takeaways
Align your nonprofit with 501(c)(3) tax-exempt rules.
Include state-required identifiers and check availability.
Submit Form 1023 and maintain compliance.
Board, executives, and staff guide operations
Legal noncompliance, weak governance, and poor budgeting.
When you hear the term “nonprofit,” you probably think of a charity or organization working towards a way to benefit the community, but they also benefit the economy. Nonprofits add millions of people with full-time positions to the American workforce and generate billions of dollars each year.
Nonprofit organizations are also one of the most popular business structures, too. According to Statista, nearly two million nonprofits were registered with the IRS in 2024. [1] With so many people choosing this path, formation services are seeing a huge demand. For example, in 2018, Swyft Filings helped form more than 2,200 organizations. You could say an average of about nine per day.
If you think a nonprofit is the right structure for your new business, keep reading. Here, we dive into how to start a nonprofit organization.
Step 1: Identify Your Nonprofit’s Purpose
To qualify for federal tax-exempt status, a nonprofit's articles of incorporation must include a purpose statement that aligns with Section 501(c)(3) of the Internal Revenue Code:
“... corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.” [2]
This language matters because not all tax-exempt organizations fall under the same category. Section 501(c)(3) organizations are specifically formed for charitable purposes and qualify for federal tax exemption, including the ability to receive tax-deductible donations.
Other classifications, such as 501 (c)(4) through 501(c)(29) may also be tax exempt, but they serve different functions and do not operate primarily for charitable purposes in the same way.
Step 2: Choose a Name For Your Organization
Because your nonprofit will be incorporated at the state level, most states require a word that shows your organization is a corporation. This rule is about legal structure, not tax-exempt status.
Common identifiers include:
- Corporation
- Company
- Incorporated
- Limited
Suffix rules vary by state, so check your state's naming requirements first.
Make sure your preferred company name is available in your state. For example, if you are wondering how to start a nonprofit in Texas, you would check the Texas Secretary of State business registry and federal trademark databases.
Many nonprofits also choose names that reflect their mission or cause. Consider looking at the tips for naming your business.
Step 3: Create Bylaws For Your Organization
Bylaws act as the operating manual for your nonprofit. They explain how the organization runs and are also required when applying for IRS tax-exempt status.
Bylaws vary by organization, but they outline:
- When board meetings are held
- Voting procedures
- How conflicts are handled
- Who serves on the board
- How committees are created or dissolved
- How bylaws can be amended
Because bylaws are a formal legal document, many organizations choose to use professional bylaws creation services to ensure compliance with state and IRS requirements.
Step 4: Elect a Registered Agent
You must list a registered agent in your nonprofit filing and provide the information of the person. A registered agent’s role is to receive any formal correspondence between government agencies and your business. In the event of a lawsuit or other legal action, all the contact information for the registered agent must be up-to-date.
Step 5: Appoint And Organize Your Leaders
Like corporations, nonprofits need people in key roles to operate effectively. These roles support governance, strategy, and daily work.
The board of directors oversees the organization. The board hires executive leadership and votes on major financial and strategic decisions.
Executive staff manage daily operations. They also represent the organization publicly. These roles often include a:
- President
- Vice president
- Other chief officers
Managers handle programs and work directly with the community or clients. Administrative staff support both managers and executives with operational tasks.
You must meet state and IRS requirements for board structure after defining roles. Most states require at least one director. However, many nonprofits appoint three directors. This helps meet governance best practices.
It can also prevent delays when applying for 501(c)(3) tax-exempt status, where a broader board structure is often expected.
Step 6: File the Articles of Incorporation
This document is also referred to as “Certificate of Incorporation” or “Charter Document.” It is required to keep your organization in good standing with the state. The Articles of Incorporation include:
- Organization name
- Type of nonprofit
- Purpose statement
- Registered agent
- Names of incorporators
- Names of directors
- Designation of stock or non-stock
- Statement of whether membership-based or not
Filing requirements and document details vary by state, so it’s important to review your state’s official filing guidelines before submitting.
To find more information on incorporating your business and how to file the Articles of Incorporation, refer to the reputable guidance material.
Step 7: Apply for Tax Exemptions
File a Form 1023 with the IRS to ensure you obtain 501(c)(3) status. [3] Before you can file paperwork, you need to apply for an EIN (Employer Identification Number). From there, you can follow the Form 1023 checklist to make sure you include everything in the application.
Once you receive federal approval, you also need to ensure the organization is exempt at the state and local levels, such as avoiding state income, sales, and property taxes.
Tax compliance does not end after approval. Most tax-exempt organizations must file Form 990 annually with the IRS. [4] This filing helps maintain the organization's exempt status and establishes the nonprofit organization in good standing.
Step 8: Obtain the Required Licenses and Permits
You may need business licenses and permits to operate legally after incorporating your nonprofit. These can relate to sales tax, employment, or general local operations. Requirements depend on your state and city.
Many states also regulate charitable fundraising. Nonprofits may need to register before soliciting donations. Rules vary widely by state.
Because licensing requirements differ by location and activity, organizations often review state and local government resources to determine which permits apply.
Step 9: Set Up Financial Systems and Compliance
After incorporation and tax-exempt recognition:
- Open a business bank account in the nonprofit's name
- Set up financial record-keeping and accounting software
- Plan for annual reporting, including IRS Form 990 filings
Good systems now help your nonprofit stay compliant and build trust with donors, funders, and the public.
What Are The Best Online Services For Registering a Nonprofit in the US?
Starting a nonprofit involves both state incorporation and federal tax-exempt approval. Many founders choose to use professional formation services. These services reduce filing errors and stay compliant from day one. Professional nonprofit formation platforms often provide:
1. Articles of Incorporation Filing
Preparation and submission of state formation documents with the required nonprofit and IRS language.
2. EIN Registration
Obtaining the organization's federal Employer Identification Number so it can open a bank account and operate legally.
3. Bylaws And Organization Documents
Foundational governance documents outlining board structure, voting rules, and internal procedures.
4. Registration Agent Service
Receiving official government correspondence and legal notices on behalf of the nonprofit.
5. Tax Exempt Application Preparation
Support organizing information needed for IRS Form 1023 or 1023 EZ filing.
6. Compliance Monitoring
Reminders and tools to help nonprofits stay in good standing with annual reports and ongoing requirements.
When you are looking for the services, you should ask yourself these questions:
- Will this service help me stay compliant next year?
- Can I scale operations easily?
- Will I have support if documents need updates?
Let Us Help You Form Your Nonprofit Organization!
There are many contextual issues that may affect your nonprofit’s incorporation, such as the industry and size of your organization. With this in mind, consider contacting a professional filing service before starting your new venture.
The Swyft Filings team is ready to help you set up your nonprofit. Contact us today!
Related Articles:
Swyft Filings Nonprofit Filing
You Have Successfully Incorporated! What’s Next?
How to Prepare Your Non-Profit for the Holidays
Frequently Asked Questions (FAQs)
1. Is it better to have an LLC or a nonprofit?
An LLC is better if you want a for-profit business with flexible management and profit distribution. A nonprofit is better if you want tax-exempt status and to serve a public or charitable mission.
2. What is the 5% rule for nonprofits?
It is a federal requirement that applies to private foundations. It states that each year they must distribute at least 5% of the fair market value of their investment assets for charitable purposes.
3. What are common nonprofit mistakes?
Here are the common mistakes:
- Failing to comply with legal and tax requirements
- Weak financial management or budgeting
- Ineffective fundraising strategies
- Poor governance or board oversight
4. Can a single-member LLC be a non-profit?
Yes, but there are important limitations.
A single-member LLC can only function like a nonprofit (and receive 501 (c) (3) tax-exempt treatment in very specific situations.
One common way is when the single member is already an existing 501(c)(3) nonprofit. This way, the LLC becomes a disregarded entity owned by that nonprofit and shares its tax-exempt status.
5. Can I pay myself if I run a nonprofit?
Yes. You can pay yourself a salary from a nonprofit, but you must follow strict rules. The board must approve your pay in advance. The salary must be reasonable compared to similar nonprofits, and you must not vote on your own compensation. Pay must reflect real work done for the organization and be properly documented and reported.
Bibliography
- Statista. Number of non-profit organizations in the United States from 1998 to 2024. Accessed on February 1 2026.
- Internal Revenue Service. Exempt Purposes Internal Revenue Code Section 501(c)(3). Accessed on February 1, 2026.
- Internal Revenue Service (IRS). Form 1023. Accessed on February 1, 2026.
- Internal Revenue Service. Form 990. Accessed on February 1, 2026.