starting a nonprofit in minnesota

Starting a Successful Nonprofit March 12, 2009

© Minnesota Council of Nonprofits 2314 University Avenue West, Suite 20, Saint Paul, Minnesota 55114 ph: 651-642-1904 www.mncn.org

Presented by Nicole GarstMinnesota Council of Nonprofits

Please note this workshop is not legal advice, nor is it intended to replace consultation with an attorney

About MCN

© Minnesota Council of Nonprofits, St. Paul, Minnesota www.mncn.org

Welcome to Starting a Nonprofit I: Laying the Foundation for Success

The Minnesota Council of Nonprofits informs, promotes, connects and strengthens individual nonprofits and the nonprofit sector

Statewide

1,950 members

Training on management, governance, public policy, leadership and more

Publishes original research

Has group-buying programsthat helps nonprofits save MCN’s website: www.mncn.org

What is a nonprofit?

A mission-driven, board-directed, uniquely funded organization.


Charity

501(c)(4):

Advocacy

Organizations

Tax-exempt

organization501(c)(3)

Foundation

Not-for-profitFraternal organizations

501(c)(6):Professional and

Trade Associations

Surveying the scene: background information

Yet most are 501(c)(3)

“501(c)(3)” refers to section of IRS code

Most common type Must serve “charitable, religious,

scientific or educational” purpose Must ensure no part of income

generated goes to benefit any one person

#1 reason:



Yet most are 501(c)(3)

“501(c)(3)” refers to section of IRS code

Most common type Must serve “charitable, religious,

scientific or educational” purpose Must ensure no part of income generated

goes to benefit any one person #1 reason: Donations are tax

deductible!



How are nonprofits different? Mission-driven

Do you have a mission statement? Governed by a Board of Directors

In Minnesota, minimum of 3 people Revenue Streams

Many have multiple revenue streams: individual donations, corporate sponsorships, earned income, government contracts, etc.



What about the sector in MN?


There are over 6300 nonprofits state-wide


What about the sector in MN?


There are over 7100 nonprofits state-wide

Nonprofits located in Minnesota reported $33 billion+ in revenues and $29 billion+ in expenditures for 2007 (most recent data available).Source: 2008 Nonprofit Economy Report published by the Minnesota Council of Nonprofits


1 in every 10 workers


Source: 2008 Nonprofit Economy Report published by the Minnesota Council of Nonprofits


Challenges & Alternatives

Starting a nonprofit can be difficult


Challenges

Funding is tightCompetition for clientsPaperwork Regulatory restrictions


Challenges & Alternatives

Starting a nonprofit can be difficult


AlternativesJoin an existing effort

Create a new program at an existing organization or start a local chapter of a national organization

Start an informal clubRevenue must be under $25,000Donations not tax-deductibleNo paid staff (otherwise business)

Find a Fiscal Sponsor (Fiscal Agent)

Challenges

Funding is tightCompetition for clientsPaperwork Regulatory restrictions


Government Agencies Nonprofits governed by Minnesota Statute 317A, the Nonprofit

Corporation Act


Understanding the Process: Government Agencies and Timeline


Corporation Act Minnesota Attorney General

Enforces rules and protects Minnesota Consumers You’ll need them for: Initial registration, annual report filing






Minnesota Secretary of State Keeps records You’ll need them for: Searching for a unique name,

registering name, filing articles of incorporation and annual registration






Minnesota Secretary of State Keeps records You’ll need them for: Searching for a unique name,

registering name, filing articles of incorporation and annual registration

Minnesota Department of Revenue You may need them for: State sales tax exemption (not

automatic!) and collection of sales tax if you’re selling items






Minnesota Secretary of State Keeps records You’ll need them for: Searching for a unique name, registering

name, filing articles of incorporation and annual registration Minnesota Department of Revenue

You may need them for: State sales tax exemption (not automatic!) and collection of sales tax if you’re selling items

Internal Revenue Service (IRS) Federal Enforcer (grants tax exemption, if qualified) You’ll need them for: Getting an employer identification number

(EIN), granting tax-exempt status and the Federal ID number, and filing your annual Form 990 tax return



Government Agencies Nonprofits governed by Minnesota Statute 317A, the Nonprofit Corporation

Act Minnesota Attorney General


Minnesota Secretary of State Keeps records You’ll need them for: Searching for a unique name, registering name,

filing articles of incorporation and annual registration Minnesota Department of Revenue

You may need them for: State sales tax exemption (not automatic!) and collection of sales tax if you’re selling items

Internal Revenue Service (IRS) Federal Enforcer (grants tax exemption, if qualified) You’ll need them for: Getting an employer identification number (EIN),

granting tax-exempt status and the Federal ID number, and filing your annual Form 990 tax return

There may be others, depending on your area Accreditation, certification, regulation, etc.



Timeline for starting a nonprofit

See “Step by Step Guide”Visionary StagePlanning StageFederal FilingMinnesota FilingAnnual Filing



Mission Statements

A major difference between for-profit and nonprofit

Should guide your work over the life of the organization

Less than 30 seconds, should tell your story and ideals

At your core!


Visionary Stage: Find your Mission

Headwaters from which your work flows

Mission Statements

Our mission is to reduce waste today through innovative resource

management and to reach a waste- free tomorrow by demonstrating that

waste is preventable not inevitable.

Girl Scouting builds girls of courage, confidence, and character, who make the world a better place.



Mission Statements

Tips Believe in your mission statement! Aim high, be visionary Post it, share it, display it Avoid being self-congratulatory: “great

service”



The Board Required: 3+ people, meet at least once per year, keep

records, including attendance and voting records Purpose:

Overall governance at a high level Strategic Planning Hire/Fire/Evaluate Executive Director Review management, finances, budget, long-term

commitments and other fiduciary duties


Visionary Stage: Board of Directors

1920 League of Women Voters Board of Directors

Source: http://www.lwv.org/

The Board

Initial Board will approve and adopt Articles of Incorporation and Bylaws, future Boards will amend

There is no power in any one director, although there are positions: Chair, Vice Chair, Treasurer, etc.



The Board: Consider This

What will your role be, once you have started this organization? Will you serve on the Board or will you be the Executive Director?

Board Executive DirectorHigh-level strategy………. not………….Daily OperationsFew hours per month…….not………….Full-timeHires & Fires ED………….not………….Is hired, fired, evaluatedDoes not supervise lower staff………...Oversees staffApproves budget ……………………….Formulates & enforces budget

Conflict of Interests that may arise if serving as both: Hiring, firing and evaluating Executive Director (salary,

benefits) Disproportionate control of organization “Founder’s Syndrome”—organization becomes “mine”



The Board: Resources



A guide for board, managers and staff emphasizing quality,

responsibility and accountability (in print and online)

Info Central at www.mncn.orgprovides more information


Attorney General publishes “Fiduciary Duties of Directors of Charitable Organizations” (Print and online)




MAP for Nonprofits is also an established leader, providing Board Boot Camps, Board Chair Training and personalized trainings & consulting



“Business” Planning


Visionary Stage: Business Planning

Funding? From individuals,

foundations, government,

sales…?

What activities or programs will advance

your mission?

How will you spend

funds?

Marketing?

How will you attract clients, staff, volunteers, donors, supporters?

Office space?

Building needs?

Staffing?

Business Planning


Visionary Stage: Business Planning

Funders will want to know about your planning efforts, as will the IRS

Can take any number of formats—pick what works best for your organization

Consider including: projected financials; staff and space needs; programs/projects; timelines; marketing/outreach needs; the need for your organization (filling a gap?); etc.

Reserve your name


Stepping from vision to action: Reserve your name

First, check availability at the Secretary of State’s website (free)

Reserve your name


Stepping from vision to action: Reserve your name

Reserve name by mail only ($35) See step 4 in handbook for address:

Minnesota Secretary of StateBusiness Services Division180 State Office Bldg., 100 Constitution Ave.St. Paul, MN 55155-1299

Renew yearly (no cost—they send you a letter), if not renewed, organization is legally dissolved

Articles of Incorporation


Stepping from vision to action: Articles of Incorporation

Your articles are your founding document—your Declaration of Independence (the Bylaws will be your Constitution)

Will be submitted to State and Federal government

Absolutely must include only 4 items: Name of organization Address of organization Address of incorporator Statement indicating organized under MN Statute 317A

Caution! Caution!



Very, very, very important:

If you plan to apply for 501(c)(3) tax exemption from the IRS, you MUST NOT use the sample Articles of Incorporation from the Secretary of State!

Better examples are included in your book or at the MCN website: www.mncn.org




ARTICLE I — NAMEThe name of this corporation shall be ABC

Nonprofit.

ARTICLE II — REGISTERED OFFICE ADDRESSThe place in Minnesota where the principal office of

the corporation is to be located at 1515 University Ave. N, St. Paul, Minnesota 55114.




ARTICLE III — PURPOSEThis corporation is organized exclusively for charitable, religious,

educational, and scientific purposes as specified in Section 501(c)(3) of the Internal Revenue Code, including for such purposes, the making of distributions to organizations that

qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any

future federal tax code.The purpose of this corporation is:

· to support and conduct non-partisan research, education, andinformational activities to increase public awareness of

juveniledelinquency;· to combat crime within neighborhoods; and

· to prevent community deterioration.




ARTICLE IV — EXEMPTION REQUIREMENTSAt all times the following shall operate as conditions restricting the operations and

activities of the corporation:1. No part of the net earnings of the organization shall inure to the benefit of, or be

distributable to its members, trustees, officers, or other private persons, except that organization shall be authorized and empowered to pay reasonable compensation for

services rendered and to make payments and distributions in furtherance of the purpose set forth in the purpose clause hereof.

2. No substantial part of the activities of the corporation shall constitute the carrying on of propaganda or otherwise attempting to influence legislation, or any initiative or

referendum before the public, and the corporation shall not participate in, or intervene in (including by publication or distribution of statements), any political campaign on

behalf of, or in opposition to, any candidate for public office.

3. Notwithstanding any other provisions of this document, the organization shall not carry on any other activities not permitted to be carried on by an organization exempt from

federal income tax under Section 501(c)(3) of the Internal Revenue Code or corresponding section of any future tax code, or by an organization, contributions to

which are deductible under section 170(c)(2) of the Internal Revenue Code, or corresponding section of any future tax code.




ARTICLE V — MEMBERSHIP/BOARD OF DIRECTORSThis corporation shall have members. The eligibility, rights and

obligations of the members will be determined by the organization's bylaws. The management of the affairs of the

corporation shall be vested in a board ofdirectors, as defined by the corporation's bylaws. No director shall

have any right, title, or interest in or to any property of the corporation.

The number of directors constituting the initial board of directors is four (4); their names and addresses are as follows:

Susan Gerrison, 27 1st Ave. S, Minneapolis, Minnesota 55441Gerald Smith, 1250 Douglas Ave., Bloomington, Minnesota, 55431Roger Schroeder, 198 Polk Blvd., Minneapolis, Minnesota 55406

Andrea Koppin, 18510 37th St., #D, Minneapolis, Minnesota 55408




ARTICLE VI — PERSONAL LIABILITYNo member, officer, or director of this corporation shall be personally

liable for the debts or obligations of this corporation of any nature whatsoever, nor shall any of the property of the members,

officers, or directors be subject to the payment of the debts or obligations of this corporation.

ARTICLE VII - DURATION/DISSOLUTIONThe duration of the corporate existence shall be perpetual until

dissolution. Upon the dissolution of the organization, assets of the corporation shall be dis-tributed for one or more exempt

purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax

code, or shall be distributed to the federal government, or to a state or local government, for a public purpose.




ARTICLE VIII - INCORPORATORSIn witness whereof, we, the undersigned, have hereunto subscribed our names for the purpose of forming the corporation

under the laws of the State of Minnesota and certify we executed these Articles of

Incorporation this (date).




File your Articles of Incorporation with the Minnesota Secretary of State’s Office.

Business Counter60 Empire Dr, Saint Paul, MN 55103

Includes a $70 fee payable to Minnesota Secretary of State.

Bylaws


Stepping from vision to action: Bylaws

Your bylaws are your rule book (your Constitution).

Used upon the foundation of MN Statute 317A

Will be submitted with your IRS Form 1023 and referred to by the organization throughout its lifespan.

Bylaws



Will address organizational issues such as:Membership Board of DirectorsFiscal Management Amendments

Will be adopted by the first meeting of the board of directors

Some Tips Use plain language Refer to MN Statute 317A Remember – this document will be used

throughout the life of the organization!

Bylaws



Two versions: With Members (voting members who will

choose the board of directors and have voting input into the direction of the organization)

Without Members (its only voting members will be its board of directors – much more common)

Bylaws: Sample



ARTICLE I — NAME AND PURPOSE Section 1 — Name: The name of the organization shall be ABC Nonprofit. It shall

be a nonprofit organization incorporated under the laws of the State of Minnesota

Section 2 — Purpose: ABC Nonprofit is organized exclusively for charitable, scientific and education purposes.

The purpose of this corporation is:to support and conduct non-partisan research, education, and informational activities to increase public awareness of juvenile

delinquency;to combat crime within neighborhoods; and to prevent community deterioration.

ARTICLE II — MEMBERSHIP Section 1 — Membership: Membership shall consist of the board of directors.

Bylaws: Sample



ARTICLE III — BOARD OF DIRECTORS Section 1 — Board role, size, and compensation: The board is responsible for

overall policy and direction of the association, and delegates responsibility of day-to-day operations to the staff and committees. The board shall have up to 20, but not fewer than 16 members. The board receives no compensation other than reasonable expenses.

Section 2 — Terms: All board members shall serve two-year terms, but are eligible for re-election for up to five consecutive terms.

Section 3 — Meetings and notice: The board shall meet at least quarterly, at an agreed upon time and place. An official board meeting requires that each board member have written notice at least two weeks in advance.

Section 4 — Board elections: During the last quarter of each fiscal year of the corporation, the board of directors shall elect Directors to replace those whose terms will expire at the end of the fiscal year. This election shall take place during a regular meeting of the directors, called in accordance with the provisions of these bylaws.

Section 5 — Election procedures: New directors shall be elected by a majority of directors present at such a meeting, provided there is a quorum present. Directors so elected shall serve a term beginning on the first day of the next fiscal year.

Bylaws: Sample



ARTICLE III — BOARD OF DIRECTORS Section 6 — Quorum: A quorum must be attended by at least forty percent of

board members for business transactions to take place and motions to pass. Section 7 — Officers and Duties: There shall be four officers of the board,

consisting of a chair, vice-chair, secretary and treasurer. Their duties are as follows:

The chair shall convene regularly scheduled board meetings, shall preside or arrange for other members of the Executive Committee to preside at each meeting in the following order: vice-chair, secretary, treasurer.

The vice-chair shall chair committees on special subjects as designated by the board.

The secretary shall be responsible for keeping records of board actions, including overseeing the taking of minutes at all board meetings, sending out meeting announcements, distributing copies of minutes and the agenda to each board member, and assuring that corporate records are maintained.

The treasurer shall make a report at each board meeting. The treasurer shall chair the finance committee, assist in the preparation of the budget, help develop fundraising plans, and make financial information available to board members and the public.

Bylaws: Sample



ARTICLE III — BOARD OF DIRECTORS Section 8 — Vacancies: When a vacancy on the board exists mid-term, the

secretary must receive nominations for new members from present board members two weeks in advance of a board meeting. These nominations shall be sent out to board members with the regular board meeting announcement, to be voted upon at the next board meeting. These vacancies will be filled only to the end of the particular board member's term.

Section 9 — Resignation, termination, and absences: Resignation from the board must be in writing and received by the secretary. A board members shall be terminated from the board due to excess absences, more than two unexcused absences from board meetings in a year. A board member may be removed for other reasons by a three-fourths vote of the remaining directors.

Section 10 — Special meetings: Special meetings of the board shall be called upon the request of the chair, or one-third of the board. Notices of special meetings shall be sent out by the secretary to each board member at least two weeks in advance.

Bylaws: Sample



ARTICLE IV — COMMITTEES Section 1 — Committee formation: The board may create committees as

needed, such as fundraising, housing, public relations, data collection, etc. The board Chair appoints all committee chairs.

Section 2 — Executive Committee: The four officers serve as the members of the Executive Committee. Except for the power to amend the articles of incorporation and bylaws, the Executive Committee shall have all the powers and authority of the board of directors in the intervals between meetings of the board of directors, and is subject to the direction and control of the full board.

Section 3 — Finance Committee: The treasurer is the chair of the Finance Committee, which includes three other board members. The Finance Committee is responsible for developing and reviewing fiscal procedures, fundraising plan, and annual budget with staff and other board members. The board must approve the budget and all expenditures must be within budget. Any major change in the budget must be approved by the board or the Executive Committee. The fiscal year shall be the calendar year. Annual reports are required to be submitted to the board showing income, expenditures, and pending income. The financial records of the organization are public information and shall be made available to board members and the public.

Bylaws: Sample



ARTICLE V — DIRECTOR AND STAFF Section 1 — Executive Director: The executive director is hired by the board.

The executive director has day-to-day responsibilities for the organization, including carrying out the organization’s goals and policies. The executive director will attend all board meetings, report on the progress of the organization, answer questions of the board members and carry out the duties described in the job description. The board can designate other duties as necessary.

ARTICLE VI — AMENDMENTS Section 1 — Amendments: These bylaws may be amended when necessary by

two-thirds majority of the board of directors. Proposed amendments must be submitted to the secretary to be sent out with regular board announcements.

CERTIFICATION These bylaws were approved at a meeting of the board of directors by a two-

thirds majority vote on November 30, 2006.

Bylaws



Refer to and review your bylaws frequently

Amend them when necessary Have a current copy available to

distribute upon request.

IRS Form 1023


Filing for Tax Exempt Status: IRS Form 1023

Application for Recognition of Exemption: 501(c)(3) Status

When accepted will recognize donations to the organization as tax-deductible (if filed within 18 months of incorporation is retroactive to date of incorporation)

May take up to 60 hours to complete Many organizations can complete on their

own; some do require legal consult Includes a $750 fee payable to the IRS

IRS Form 1023


Filing for Tax Exempt Status: IRS Form 1023

Thank you.

© Minnesota Council of Nonprofits 2314 University Avenue West, Suite 20, Saint Paul, Minnesota 55114 ph: 651-642-1904 www.mncn.org

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starting a nonprofit in minnesota

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