Some people who discover needs in their community start charities to help address them. Charities have been started by people of all ages and walks of life to address homelessness, hunger, to ensure children have warm coats, and school supplies.
If there is a concern on your heart, then there are several steps you can take to start a charity, so you can raise funds to address the need. This information can help you learn how to start a charity.
Starting a Charity
To start a charity, you will need a plan that will address the concern, how to resolve it, and how to raise money for the solution. Here are some steps to take to set-up a charity.
Identify the Problem
Although the problem you want the charity to address may be obvious to you, it needs to be explained so others can understand it. Describe the need by researching it and finding out its cause, how wide-spread it is, and come up with solutions for it.
It will help to answer questions like:
- What is the problem?
- Who does it affect?
- Where does it exist?
- When does it happen?
- How can it be resolved?
Also, consider the scale of the problem and decide whether your charity should be local, nationwide, or global in scale.
It is important to come up with a solution for the problem when you’re starting a charity. If there are already charities that help resolve the need you’ve found, address why your solution is different and more effective.
If it is an unaddressed need, explain how you discovered it. Describing the issue will help others understand the problem, as well as the solution, and it will help in your fund-raising efforts.
Name the Charity
Come up with a name that describes the function of the charity or name it after someone. Charities named in the memory of someone do well and can help raise more money for the cause.
Write the Plan
You will need to develop and write a plan in much the same way business owners have to write business plans to get funding for their companies. Write down your vision for the charity, its mission statement, name, and explain how it differs from other charities that may address the same need.
Develop and write down at least five years of strategies for raising money, how the charity will operate, outline a budget, and how to raise awareness of the problem and your charity.
Decide on Status
When starting a charity, a decision about the tax status needs to be made. You should consult a tax attorney or an accountant to help you determine which status to apply for from the Internal Revenue Service (IRS). The decision will determine whether it will be a non-profit vs. not-for-profit charity.
Nonprofit organizations or charities can do almost anything to raise money for the promote their cause. The only thing they cannot do is operate to make a profit.
A nonprofit organization can be large, like an international charity like the Red Cross, or they can be small local organizations. They exist to promote objectives, whether they be religious, cultural, scientific, artistic, or another.
Nonprofit organizations are a separate legal entity and require having a 501(c)(3) status to operate. The 501(c)(3) is an IRS code that allows a nonprofit to have tax-exempt status. Nonprofits may also include charitable trusts from donors.
While not-for-profit organizations are similar to nonprofits, there are some distinct differences. While nonprofits promote causes, not-for-profits exist for the betterment of society in general. They use all the money they raise to fulfill their objectives and do not distribute anything to its owners.
Not-for-profit organizations are smaller than nonprofits and maybe organizations like sport’s clubs, women’s clubs, or other small charities. While they can apply for a 501(c)(3) tax-exempt status, they are not a separate legal entity.
Form Advisory Board
After deciding the not-for-profit vs. nonprofit status question, you will need to form an advisory board if the charity is going to be a nonprofit. The board members should be people with nonprofit experience, whether it is fundraising, finances, or both.
The board can help establish the charity, and they should be people whom you can call upon at any time when advice is needed. They will also meet formally once a week or month until operations begin.
Raise Money to Launch
A nonprofit should not be established with debt, so you should raise money to get the organization started. The experienced fundraisers on the board can suggest ideas for raising money or reach out to people they know who may be interested in donating to the charity. They may also know foundations to reach out to for startup funding.
One of the main activities for any charity is raising money on which to operate. There are dozens of nonprofit fundraising ideas and many charities utilize several of them. A common way to raise money, and awareness for charities, is to sponsor activities in which people can participate and help raise funds.
A walkathon, fun runs, or bicycle tours are some of the activities in which people like to engage. Participants and volunteers are often outfitted with t-shirts displaying information about the event with a list of business sponsors on the back of it. It is a good way to advertise the charity.
Another way to raise funds is to hold silent auctions. Charities get businesses, sports teams, and others to provide items on which people place bids. Whoever has the highest bid, which is kept private, will win the item.
Companies may provide televisions, gift cards worth certain dollar amounts, hotel stays, and there is usually one large item up for auction, such as a vacation or a car. Some of the most valued items are tickets to sporting events or autographed baseballs, footballs, basketballs, or bats signed by sports figures from the community.
After learning how to start a charity, putting together a plan, forming an advisory board, and raising money, you are ready to begin operations. It is wise to be careful with the money you’ve raised to try to do as much as possible with what is available.
What is a Foundation?
Another way to organize a charity is by establishing a private foundation. While some foundations are formed because an organization didn’t qualify as a public charity, most of them are purposely formed. There are some advantages to forming a foundation.
- They can be formed and funded by businesses, small groups, families, or individuals.
- Foundations can financially support public charities instead of operating a specific program.
- There is a third type of 501(c)(3) for private operating foundations so that they can have tax-exempt status.
How to Start a Charity Foundation
In some ways, starting a private foundation isn’t that different than starting a charity, but it can be less complicated.
The first step in starting a charitable foundation is defining its purpose. Some foundations give to a variety of causes, while others focus on a specific type of charity. Defining the purpose is a requirement for gaining tax-exempt status, and it will help guide the foundation’s activities.
Another responsibility for starting a foundation is to set guidelines for issuing grants. The purpose of the foundation will help determine to whom to give grants, but the charity needs to meet criteria set up by the owners of the foundation.
The next step is to decide whether the foundation should be a charitable trust or a nonprofit corporation. Although charitable trusts can be easier to form and operate, nonprofit corporations provide more legal protection for trustees.
Nonprofit corporations are more common than trusts despite stricter operating requirements. There is less personal liability with nonprofits, and they have more flexibility in how they disperse their funds. However, they need to follow the same steps as forming a for-profit corporation.
To form a nonprofit corporation, articles of incorporation and bylaws need to be written, officers and directors for the corporation need to be named, and a filing with the state in which the foundation is located needs to be done.
Apply for Tax ID
No matter how the foundation is formed, the IRS requires an application for an employer identification number or EIN. Although you may never hire staff for the foundation, the EIN will act like its tax identification number.
File for Tax-Exemptions
Then, forms to receive tax-exempt status will need to be filed with the IRS, and once they approve it, you must also file for tax-exempt status within your state. Once everything is in place, you can then start operating the foundation.
Whether you want to know how to start a foundation or how to start a charity, this information can provide you with a good start. However, you should seek advice from experienced legal and financial experts to ensure all the proper paperwork is submitted and the formation is done correctly, so your private foundation or charity can legally operate.