Can I Run a Nonprofit By Myself?
When you create a nonprofit, you can put yourself in any position within the company and set your own salary. However, the IRS expects reasonable compensation based on comparable salaries. Indeed, the IRS allows founder salaries, and the rules for compensation are the same as for other nonprofits. No strict guidance on the amount exists, but excessive pay may lead to penalties. It is important to decide on a salary that conforms to IRS expectations.
Some states refer to nonprofits as non-stock corporations. When a nonprofit dissolves, any remaining funds and property are distributed for tax-exempt purposes after debts are paid.
The structure of your nonprofit also affects staff payments, your own salary, and grant eligibility. The IRS pays close attention to conflict of interest and forbids private benefits. Employees who are paid a full-time salary cannot be directors or officers of the nonprofit.
Understanding donors’ expectations is also critical because even if a salary is reasonable legally, donor opinions can significantly influence what is considered appropriate. There are no fixed salary percentages; it largely depends on your donors and the specific context of the nonprofit.
Starting a Nonprofit Organization
Formation Steps
To register a nonprofit, you need to understand several key steps:
- Identify a Problem: Ensure the problem or need you want to address doesn’t already have organizations working towards a solution.
- Structure and Compliance: Consider how the structure of your organization will affect operations, paying staff, and obtaining tax-exempt status.
- State and Federal Registration: Register your nonprofit with state and federal governments for tax-exempt status. Fees for this can vary widely.
- 501(c)(3) Application: Prepare your application thoroughly to increase the chances of success in obtaining the 501(c)(3) status.
You have to be mindful of costs, which may range from $500 to over $1,000. Gaining tax-exempt status allows your nonprofit to operate in a manner similar to businesses, where income from nonprofit activities is not taxable.
Roles and Titles
The founder of a new nonprofit often starts as the board president, a title that can be interchangeable with "Executive Director" in smaller organizations. You may ask yourself, "Can I be the CEO of my own nonprofit?" And the answer is yes. You can even start an NPO with little to no initial funding. Nonprofit corporations are distinct from other business forms because they do not exist to generate profits for owners or shareholders.
Legal and Financial Considerations
All nonprofits are governed by a board of directors, which ensures the organization adheres to its mission and operates in the public interest. A nonprofit corporation also has officers, often appointed by the board, such as a president, secretary, and treasurer.
To start a 501(c)(3), the process generally involves incorporation at the state level and then applying to the IRS for tax-exemption. Skipping the incorporation process is not advisable.
Conclusion
Anyone can start a nonprofit organization; while it is an ambitious undertaking, it is entirely feasible with proper planning and adherence to legal requirements. Addressing financial challenges and operational complexities is part of the journey. Starting a nonprofit is a structured process that involves careful attention to legal obligations and an understanding of the nonprofit landscape.