Have you ever wanted to create change in the world but weren’t quite sure where to start? Our friend Sam Mazzeo, a legal rockstar and former Invisible Children staff member, has some great advice about how to start a nonprofit. He knows his stuff, so be prepared for extensive detail and concrete steps on how to pursue your own nonprofit organization.
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How can I become the champion of my cause?
As a former member of the Invisible Children legal team, I learned a great deal (understatement) working on international contracts, media licenses, human resources, dispute resolution, and overall legal guidance for an exceptionally innovative (read: risk-taking) organization. A large part of my learning curve at Invisible Children was under the tutelage of Emily Wilkinson, who guided me and empowered me to become the well-rounded attorney I am today. Emily built IC’s legal department and served as Board Secretary, both of which were challenging gigs. Recently, Emily and I ventured out on our own, forming Wilkinson Mazzeo to serve the communities that inspire us most—causes and creative businesses.
If Invisible Children has taught us anything, it is that caring is only the first step toward meaningful change—and that real change occurs when caring is followed by action. This post will offer tips and tricks for those of you aspiring to harness your creativity and idealism into movement.
Now, onto the tips!
FORM A NON-PROFIT
The most obvious action step is to form a non-profit, right? We think so! Forming a non-profit allows you to receive tax-deductible donations (when people donate, it benefits them at tax time) that will fund the programs you’ve designed to support your cause! The following steps should serve as a road map to getting your non-profit up and running:
- Draft and file the appropriate state application to establish your formal legal entity
- Identify, vet, and appoint a board of directors (make sure they’re awesome, then ask them!) Your board will be invaluable in advising, guiding and marketing your non-profit organization
- Draft bylaws and a conflict of interest policy to govern the roles and interactions of your high level staff and those awesome board members
- Hold your first board meeting to approve the formation of the corporation and perform a few other administrative tasks
- Obtain an employer identification number from the IRS for your organization (this is basically your organization’s social security number for employment and tax purposes)
As you can see from the above outline of the steps, forming a non-profit is no easy task and you should consult a qualified attorney to assist you in the process. If you’re not quite ready to take this leap, check out the alternative option we’ve explained below:
WORK WITH A FISCAL SPONSOR
As an alternative to starting a non-profit, there is a lesser-known option that (if done properly) helps you start building your non-profit before formalizing it. This option is like having a really great friend who lets you use their tax-exempt status and it’s called Fiscal Sponsorship.
Fiscal Sponsorship is the practice of an officially formed non-profit organization offering its legal and tax-exempt status to an organization or group of people engaged in a charitable purpose similar to the non-profit organization’s mission/charitable purpose. The established non-profit typically charges a fee, or percentage, in return for offering its umbrella status.
So, what does this actually mean? It means that you can sign an agreement with an established non-profit that allows you to receive tax-deductible donations for your cause! The only catch is the fee that the non-profit charges, which is typically 5% – 15% of the donations you receive. This fee, however, can vary and it’s completely up to the parties to decide on the fee.
So, what does this mean for the non-profit organization? There are three traditional models of fiscal sponsorship that involve different levels of legal liability and different levels of resources offered by the non-profit. Some non-profits are established solely for the purpose of offering fiscal sponsorship and those organizations will provide substantial services (such as human resources, tax reporting assistance, and more). These arrangements are such that you are considered to be a part of the non-profit for the temporary duration of your campaign (and they are legally responsible for your actions, as well).
On the other hand, some non-profits only offer fiscal sponsorship on a limited basis because they truly want to help your cause – these organizations will structure the relationship as either a grantor/grantee relationship (where they give you money raised for a specific purpose and you report how it was used, but you do not use their resources and are considered a separate entity) or as an independent contractor relationship (where the organization provides some resources, but not enough to rise to the level of employer/employee status, and you are considered a separate entity).
Of course, these are pretty general descriptions of the different ways a Fiscal Sponsorship can work, but we don’t advise running over to your nearest non-profit to set things up without doing your homework. We do think that Fiscal Sponsorship, when structured properly, can be a fantastic first step in setting up your non-profit.
Disclaimer: The information in this article is presented for informational purposes only, and should not be taken as legal advice. Before acting on any information presented in this article, you should consult an attorney regarding the facts of your specific situation. We would love to hear from you, so please feel free to contact Wilkinson Mazzeo for a consultation.
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