hi I'm Tim CEO founder of Apple software I've helped start a number of nonprofits
and worked at a church for a number of years so I've gone through this startup
process a bunch of times it's not as difficult as it seems when you do your
first one it's challenging when you do the second one it's like oh I remember
how to do all this stuff and after you've done a few of them you realize it
if I just know the steps and the checklist then it's it's pretty easy to
do filed articles incorporation with the secretary of state scheme I to bring the
entity into existence I called the IRS and got an EIN not exist there I drafted
and signed in corporator minutes relinquishing control of the board
that I've decided if you will the board then had board minutes where they
adopted the rules by which they're going to operate which are the bylaws then
what we do is we draft the we fill out the form 10 23 which is the tax-exempt
application so when you have your your corporation formed with the Secretary of
State and you need to turn it into a non-profit corporation that basically
what you do is you submit at 10:23 with the IRS that is the tax-exempt
application with the IRS there's some steps you have to do before you submit
it so basically when you formed the corporation with the Secretary of State
it was you the individual that signed the document saying this nonprofit ought
to exist now when I'm submitting a 10:23 to the IRS that's on behalf of the
corporation or the entity so you have to draw a link there between the two saying
yes I'm a part of this thing and I deserve to be able to file and it's a
thing and so there are some steps that have to take place one of the first
steps that you do when you after you form the corporation with the
Secretary of State is you draft what's called in corporator minutes and that's
where you'll basically draft minutes Board minutes which just think of a word
document the word document outlines this is what we talked about so there's
nothing special about minutes it's just notes of a meeting and so
you'll draft incorporator minutes these incorporate our minutes are you as the
incorporator you incorporated this thing you draft minutes and you say I'm
signing over basically ownership of this corporation to these people and that's
basically where you can outline the beginnings of a board and you'll say
here's here that are the people now in control and so you basically hand over I
no longer can just sign on behalf of this thing as a person now I'm giving
over control to the nonprofit itself and it has a board so you want to make sure
that you have the right people on your board you want to make sure that you
don't sign that over somebody that you are not going to want in the long run
because you're giving control this thing over they now basically own it as soon
as you do that incorporate our minutes and you sign that now they have control
and then the thing you want to do immediately after that is have your
first board meeting in your first board minutes and so a lot of times this all
happens at the same time you basically draft your board minutes
you draft your corporator minutes you sit with your board and you all talk
about it and you all sign all these documents and so what it looks like on
the board minutes is these are guys now I have control this thing and they
assign who are the officers they assigned any other directors that they
want to or appoint any other directors that they want on the board with them
and they basically in the first minutes also adopt the bylaws so bylaws it our
governing documents bylaws think of a word doc that's you know 10 pages long
or longer however long and it basically outlines this is how
this entity is going to run these are the rules by which we're going to run
the sanity so there's four people on the board three of them want to buy a
building and one of them doesn't can you do it or not so that that's what the
board the the bylaws talk about they say you know this is what the president
officers role is this is the vice-president this is the treasurer's
role and this is what they do and their responsibilities and then here's how
we're gonna make decisions these things require unanimous vote these things
require supermajority vote these things require simple majority vote these
things don't require you vote the executive director the nonprofit can can
just make these decisions so the bylaws outline a lot of that kind of stuff how
meetings will be held and how often and how many people can be on the board you
know and that kind of deal so the bylaws are a lot of work to draft there are a
lot of good examples on the internet that you can pull down and and use this
kind of guideline and then you want to make sure that you tweak it to make it
kind of yours or how you want to operate it's probably not bad also with the
bylaws to have an attorney or someone look over them you could have them draft
them if you're looking to save money you can kind of draft what you think and
have them look it over and they'll tell you where your might be tripping up but
once the bylaws are drafted so to kind of go back I've got this corporation
that's been formed with the Secretary of State I used Articles of Incorporation I
filed those with the Secretary of State now this thing exists so now I'm gonna
go find who do I want on the board I'm gonna draft my bylaws I'm gonna draft
incorporator minutes in my first board minutes we're all gonna meet together
and the incorporator minutes are where I basically sign over the entity and I say
I'm no longer gonna be the sole decision maker for this thing
these people are now in control then the board now has its first meeting now
that I've given them control and relinquish control and then they have
these minutes minutes are just the notes of what happened in a meeting and in the
first board minutes the newly appointed board basically adopts bylaws the bylaws
they'll they'll basically put in the minutes we the board adopt the bylaws
dated whatever there's a sentence in there and then you attach the bylaws of
the minutes they all sign the minutes and you put them in a file cabinet never
to be seen again so that's the first board minutes the
bylaws now are drafted now you know the rules of operating the internet all of
that's required in filing your 10:23 with the application you attach all
these documents to it you mail it to the IRS the documents you attach are things
like an expedite request policies and procedures that you've adopted the
bylaws and that kind of thing you mail all the IRS the IRS then if you're
approved gives you what's called an tax determination letter that letter comes
in the mail it's one or two pages and it basically says you are approved this
entity is approved to be a tax-exempt entity under you know 501 C 3 and so
with that letter now that's your proof that you've gone through this
application process with the IRS and the IRS is okay with you being not paying
taxes income taxes so you're not quite done yet the next thing you need to do
is get exemption from your state agency so just because you know companies pay
taxes are people in most states to the state as well as the federal government
so now you're exempt from the IRS doesn't mean you're exempt from the
state most states just want to know that you're exempt with the IRS and then
they'll say okay you're good with us too but you have to go through that process
and so in California I believe it's the FTB 3500 is the form kind of like the
IRS form is the 10:23 so you're gonna want to google your state agency and
figure out what the application is with the state and then read the instructions
for that and for many of them it's you fill out the first page or name an
address everything and then include your tap your tax determination letter that
you got from the IRS so you want to go through the federal process first all
the way get the approval attach it now send it off to the state now you're good
with the state so that's the typical path there so it's possible that you
would not be approved the first time you submit your form 10:23 to get your taxes
and status that's not terribly uncommon I've a couple of nonprofits that I've
helped get started actually a madam kickback and most of the time they're
just looking for more information or you filled something out incorrectly a lot
of nonprofits sell things like a thrift store sells things so if they fill out
and say hey we're gonna have a retail store it's like well why should that be
tax free so a lot of times they're just looking for more information or they're
pushing on a should this really be tax exempt what's goes on there with that
there's actually a ruling that takes place the IRS will give you what's
called an advance ruling and the advance ruling is a basically a five year grace
period to prove that you're tax-exempt and so what that is is they basically
each year when you turn in your 990 your informational tax return there's a
schedule that you have to fill out which is how you outline this is where all of
our money came from and you basically say the public is supporting this
charity the IRS basically gives you five years worth of data to accumulate to
prove that it's not just a tax shelter all the money is coming from this one
individual that's trying to you know pass their money through you or
something and so five years of that you're allowed to go and be an entity
try and figure it out try and get your grassroots move
go and raise money and then at the end of five years each year you're turning
in this document Bay this is I think it's the Schedule A in the 990 and so at
the end of the five years they'll give a definitive ruling I think is what it's
called and that's where they basically say okay it's no more no more basically
double checking you're good to go
you