How to open a non profit organization

We've outlined a detailed guide to setup a non profit, including governance, grants, compliance and establishing a volunteer program.

If you are considering setting up a non profit organization to serve your community, there are steps you need to follow to ensure the organization runs efficiently to fulfill its mission, and complies with government requirements.

To setup a non profit, a plan will need to be developed to understand the organization’s purpose and how it will attract donors. Next, governance will need to be addressed with the filing for tax exempt status and the appointment of a board of directors. Then, a volunteer management strategy will need to be implemented and ongoing compliance maintained.

Let’s take a closer look at what is involved in each step of opening a non profit organization. 


Why setup a non profit organization?

Often, a motivation to open a non profit organization is that an individual or group is inspired to fulfill a need in their community, or to help a group of people. 

From a different perspective, there are three common reasons that non profit organizations are setup. 


To be eligible to apply for grants

The United States government grants website enables users to search through a range of grants by eligibility status. One of the eligibility criteria that grants can be filtered by is non profit 501(c)(3) status with the Internal Revenue Service (IRS). At the time of writing, there were 207 more grants available for non profits than there were for for-profit organizations, and 161 more available than for small business.

Similarly, in the United Kingdom, the Grants Online database has 1,439 grants available for non profits but only 174 grants that for-profit organizations are eligible to apply for, at the time of writing. 

In Australia, there are a number of databases for grants available, including The Grants Hub which lists grants for organisations with non-profit status.


To avoid paying corporate tax 

The tax rules governing non profits vary from country to country, so it is important to seek professional advice specific to the circumstances of your nonprofit organization. 

The Australian Tax Office (ATO) rules state that only certain types of non profit organizations are eligible for income tax exemptions. Charities and community service organizations are included in the broad group of tax exempt organizations. 

The IRS in the US classes charitable organizations, churches and religious organizations, along with private foundations as tax exempt organizations. 

In the UK, HM Revenue and Customs (HMRC) provides tax relief on most income and gains, if those funds are used for charitable purposes. Donations, profits from trading, bank interest and property purchases are exempt from tax. However charities are required to pay tax on profits from developing land and property.


To enable donors to receive a tax deduction for their donations

The HMRC allows individuals to receive tax relief for donations made to a charity if the donation is made through the government’s Gift Aid program or through a Payroll Giving scheme that is provided by an individual’s employer. The level of tax relief depends on the rate of tax paid. 

The ATO governs when and how a donation from an individual to a non profit organization can be eligible for a tax deduction. The first requirement for a donation to be tax deductible is that it is made to an organization that is registered to receive tax deductible gifts and donations. Secondly, the individual must make the donation without receiving or expecting to receive any material benefit or advantage in return. The third condition that determines whether a donation is tax deductible is that the donation must be money or property, including financial assets such as shares. Lastly, the donation must comply with any relevant gift conditions. To claim a tax deduction for a donation, an individual must keep a record, such as a receipt, of the donation.

The IRS allows individuals to claim up to $300 in tax deductions for donations to non profits that have been granted tax exempt status. For deductions over $300, an itemized list must be made on a Schedule A (Form 1040) document. 


Steps to setup a non profit organization 

Now that we have considered some of the reasons behind setting up a non profit organization, we’ll take a look at the steps required to get the organization up and running. 

The steps required may differ depending on the type of organization you will be setting up and the country in which you will be running it. If you’re unsure, it can be a good idea to consult a professional for a complete list of tailored steps to undertake for opening your nonprofit organization. 



Research is needed to understand what gap the new non profit will address and how it differs from other organizations already operating in the same area. 

Questions that will need to be answered during the research phase of setting up a non profit organization include: 

  • What unmet community needs will the organization address?
  • How will the organization attract donors and why would donors support this new organization over an existing organization? 
  • Do you have the time and financial resources to setup a non profit organization? 
  • What are the risks associated with starting a non profit in the desired location and current economic environment?
  • What is the best financial management software and volunteer management software to use?


Choose board positions 

Having a board of directors is a legal requirement of setting up a non profit organization, and operating it. The IRS requires tax exempt non profits to have three board members who are not related by blood or marriage.

The board of directors is responsible for setting the organization’s strategy, initiating and approving policies, and decision making. The board is also responsible for ensuring the organization is abiding by all state and federal legal requirements.

When choosing board directors, it is important to appoint people who bring different skills and expertise to the organization. For example, one director with marketing skills, one with legal knowledge and one with a financial background is a diverse skillset to have on a board of directors. 


Think of a name 

One of the first duties of the board will be to approve a name for the new non profit.

A name should reflect the purpose of the organization and the cause that it serves. With today’s focus on digital marketing, a shorter name is generally better for social media handles and website domains.  

Once you have decided on a preferred name, checks will need to be undertaken to ensure the name isn’t already registered to another organization. You’ll then need to buy the website domain name and create social media accounts. 


Develop governance documentation 

Now that the research is done and a board of directors is in place, it is time to turn your attention to developing a business plan to get the organization up and running. 

To begin with, by-laws or a constitution need to be drafted to explain how the organization will operate and be governed. Then, Articles of Incorporation will need to be filed. This ensures your organization is legally recognized in your jurisdiction. 

Once the non profit is registered, a bank account and insurance need to be organized. 


Write a mission statement and values statement 

A mission statement is a brief sentence written in plain language that communicates what the organization does, how it does it, and why it does it. This sentence is an opportunity to explain what overall goal the non profit is working towards. 

The values statement should focus on what standards the organization’s directors, staff and volunteers will adhere to while working to fulfill the organization’s mission. 


File for tax exempt status

Depending on what country the non profit is registered in, there are different requirements and processes to follow to file for tax exempt status. Having tax exempt status is necessary for donors to receive tax deductions for donations they make to the organization, and for the organization to be exempt from paying federal income tax. 

The IRS, ATO and HMRC explain what forms need to be completed and what accompanying documents (for example, a copy of the by-laws and the EIN/ABN/registration number) are required to file for tax exempt status. 


Build a volunteer program 

For your non profit to run efficiently it will likely be relying on volunteers to carry out daily operations and fundraising activities. Volunteers are one of a non profit’s most valuable resources. 

The most effective way of building and managing a volunteer program is by using a volunteer management software such as Rosterfy. This software provides a centralized system that automates every aspect of volunteer management. It removes the need for various manual processes to manage volunteer recruitment, screening, scheduling, training and engagement. 

Volunteer management software can also be used to evaluate the performance of a volunteer program. It can produce reports to present useful metrics and information to the organization’s board, donors and funding bodies. 


Maintain compliance 

Once tax exempt status has been awarded, maintaining it is an ongoing process. 

By-laws or constitution 

It is crucial that the non profit operates in alignment with the by-laws or constitution. This ensures the organization is meeting its legal and ethical requirements to operate. These documents guide how frequently the board should meet, how conflicts of interest are managed, and how funds should be spent.

Record keeping 

Detailed records should be kept relating to all board, financial, and volunteer management matters. These records are necessary for tax, audit and insurance purposes. Records of financial statements showing income and expenses may be requested to verify that the organization is only using funds for the intended purpose. Minutes from meetings of the board of directors may be requested by large potential donors wanting to understand the strategic direction the non profit is taking. 

Prepare and file annual documents

In the US, the IRS requires a 990 form to be filed annually. This form assists an organization to maintain its tax exempt status. It also adds credibility to the organization as it demonstrates that funds have been used in accordance with how they were intended. 

As a way of engaging with donors, volunteers and funding bodies, a non profit should consider producing an annual report each year. This document can be used to share a message from the board of directors. It can also provide an overview of the activities undertaken and the impact the organization has had in the previous year. Along with this, it is an opportunity to present consolidated financial statements to ensure there is transparency in how the organization is spending funds. 



Now that we have covered the essential steps about how to open a non profit organization, let’s address some of the most frequently asked questions on the topic. 


How to open a bank account?

A bank account is necessary for a non profit organization to receive donations and grants and also to pay for essential operating expenses such as volunteer management software, legal and accounting costs, and head office utility bills.   

Some banks such as Westpac Bank in Australia, HSBC in the UK and Truist in the US offer fee-free or reduced fee transaction accounts for charities and non profits. 

Documents commonly required for banks to open an account for a non profit are:

  • Full name of the organization
  • Original or certified copy of the organization’s constitution or by-laws
  • Minutes from a board meeting where approval was given to open and operate the account 
  • Full names of each office holder (Chairperson, Secretary and Treasurer) 
  • Details of the organization’s activities 
  • Identification documents for each account signatory
  • Tax status of the organization 
  • Registered address of the organization.

It is important to note that best practice for any organization is to require more than one person to approve payments. This reduces the risk of funds being misspent. 


How to setup a Facebook page for a non profit? 

Facebook requires an organization’s page to be created through a personal profile page. This means the creator of the page must be logged into Facebook using their personal profile. 

Unfortunately it is not possible to use a shared email address such as admin@organization.com to create a new personal profile. Facebook recognizes this as a generic email address, not one that is connected to one person, and using generic email addresses breaches their policy. 

Once the page creator is logged into their Facebook profile, follow these steps to create a page for the non profit. 

  • Click on the menu icon in the top right of the screen
  • A create menu will pop-up. Choose the page option
  • A new page will load. Complete the details for page name (organization name) and category (non profit). From this page, images, contact details and extra organizational information can be added
  • Next, assign roles to the page. If there are other people who should have access in order to make posts and add photos to the organization’s page, they can be assigned as an administrator or editor of the page

This Facebook help article has detailed steps on how to create a Facebook page for an organization. 

Opening a non profit organization involves a number of steps in order to ensure that the organization is registered with the required government departments and operational. Once this has been achieved, the organization can work on engaging donors and volunteers to fulfill its mission. 

Appointing a board of directors, deciding on a name, drafting governance documents, a mission statement and a values statement are the initial steps in setting up a non profit organization. Then an application for tax exempt status must be filed, a volunteer management program developed, and a plan to maintain ongoing compliance implemented.

By following the steps outlined above, your new non profit will be ready to start receiving donations, applying for grants and servicing the community with tax exempt status awarded by the IRS, HMRC or ATO. 


About Rosterfy

Rosterfy exists to connect communities to events and causes they are passionate about through volunteer and paid workforce management technology. Our proven end to end technology allows charities, events and nonprofit organizations to recruit, register, screen, train, manage and report with ease, replacing manual processes with automations to better engage and retain your volunteers and paid staff.

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