Running a Nonprofit Organization
Because of the stringent rules for nonprofits, they must be much more careful in following the correct procedures in their day-to-day operations.
On a day-to-day basis, there are not many differences between running a nonprofit corporation and running any other type of business or corporation. Most importantly, you must remember the regulations governing the actions of nonprofits, their directors, members, and officers. Make sure that everyone in the organization is aware of these.
The prohibition on mixing personal and business matters in a for-profit corporation is even stronger in a nonprofit. Do not write corporation checks for your personal expenses, even if you pay them back quickly. Do not do favors for relatives with corporation assets. Treat the corporation as if you are responsible for taking care of it for someone else.
Another important thing to remember is to always refer to the corporation as a corporation. Always use the complete corporate name, including designations such as "Inc." or "Assn:'
Always sign corporate documents with your corporate title.
Note: If you do not use the complete corporate name and your title, you may lose your protection from liability. Several times people have forgotten to put the word president after their name when entering into contracts for the corporation. As a result, they were determined to be personally liable for the contract.
You should become familiar with federal and state nonprofit laws. Some states have specific requirements that must be complied with, and you are expected to know what is required of your organization.
The laws covering corporate records are slightly different in each state. You should make a list of which records are required, and then keep those records together with the list. The following are some typical rules.
Articles and Bylaws
Copies of the articles of incorporation, bylaws, and any revisions of these must be kept on hand by the corporation.
A corporation must keep minutes of the proceedings of its board of directors, its members (if any), and any committees. The minutes should be in writing. Some states allow minutes to be kept in forms other than writing, provided they can be converted into written form within a reasonable time, so they can be kept in a computer or even recorded.
A nonprofit corporation must keep accurate financial records, especially if it is engaged in charitable solicitations. These records usually include records of all receipts and disbursements, as well as tax returns and any other financial reports that are filed.
If the corporation has members, it must keep accurate records of the names and addresses of the members. Some states require the records to be in alphabetical order.
The corporation must hold an annual meeting of the board of directors, or otherwise document its decisions. If there are formal members, they must do the same.. Usually, the members elect directors, and the directors, in turn, elect officers. Minutes of these meetings, and other related documents, must be kept with the corporate records.
Most states require that each corporation file an annual report. Some states require only one report every two years. Fortunately, the report is a simple, often one-page form that is sent to the corporation by the secretary of state, often electronically, and may simply need to be signed and dated. It typically contains the taxpayer identification number, officers' and directors' names and addresses, the registered agent's name, and the address of the registered office. It must be signed and submitted with the required fee by the date specified. If it is not, the corporation may be dissolved.
Most states that require registration for charitable solicitation also require annual reports, and some require detailed financial reports.
Bookkeeping and Accounting
A good bookkeeping and accounting system will help avoid some common difficulties.
Without accurate records of where your income is coming from and where it is going, the nonprofit will be unable to increase its services, lower expenses, obtain needed financing, or make the right decisions. The time to decide how you will handle your bookkeeping is when you start your organization.
If you do not understand business taxation, you should educate yourself on the subject and meet with an accountant. The most important thing to do is to set up your bookkeeping so that you can easily fill out your monthly, quarterly, and annual tax returns. The best way to do this is to get copies of the returns and set up your bookkeeping system to group those totals.
For example, for a nonprofit organization, you will use a version of Form 990 to report revenue and expenses to the IRS at the end of the year. Use the categories on that form to sort your expenses. To make your job especially easy, every time you pay a bill, put the category number on the check.
Most nonprofit corporations are required to file a Form 990 tax return each year. If the income is below $200,000 and assets below $500,000, then Form 990 EZ can be filed. If the income is less than $50,000 the nonprofit may be able to submit the necessary form online. Check the instructions for the latest Form 990 to see if you qualify as exempt.
If your organization is a private foundation or has unrelated business income, you will need to file Form 990-PF or 990-T. Check the instructions for these forms or Publication 598 if these situations apply to you.
Some states require annual filings by nonprofits, some waive them once they are exempt, and others just want copies of the federal return.