How to Start a Ministry Non Profit

This type of organization is formed under state laws and is tax-exempt from federal
corporate taxation under the Internal Revenue Code, section 501(c)(3).3 min read

Are you wondering how to start a ministry non profit? This type of organization is formed
under state laws and is tax-exempt from federal corporate taxation under the Internal
Revenue Code, section 501(c)(3).

Starting a 501C3 Nonprofit Ministry

In order to become tax-exempt, a nonprofit ministry must be organized and operate for
religious, scientific, educational, or other charitable reasons exclusively. The first step in
starting this type of organization is deciding on a name. The name you select should clearly
communicate the purpose and mission of the ministry. For example, a Christian ministry
name should suggest what the ministry does in a memorable and appealing way. The name
should evoke emotions in those who would potentially be interested in supporting it, as well
as those who may be in need of the support services it offers.
After you come up with some name options, conduct an exhaustive search to make sure the
name isn't already in use. Resources for your search include:

1. Phone directories
2. State and federal trademark databases
3. Web searches
4. State business registries
5. Other industry sources

You want to make sure that the name you are considering isn't already in use by another
business or nonprofit organization.

Business Plan and Mission Statement

The next step is coming up with a budget for the ministry and developing a strategic
business plan. You need to transform the dreams and hopes for the organization into a plan
that outlines how you will make each task happen, taking the plan beyond an idealistic
vision to an actual, feasible organization. Your mission statement and business plan will
provide direction on what the organization wishes to accomplish, as well as how it will reach
those goals. Your mission statement should be clear and well-defined in order to qualify for
federal nonprofit status with the IRS.
The mission statement of a ministry nonprofit should be concise and brief, keeping the
organization focused as you move forward and make decisions. You should also apply the
mission statement when you:

1. Determine the name

 2. Raise funds
3. Create and publish materials

Make sure the mission statement is clearly reflected in every aspect of what your
organization will do in the community. Before granting nonprofit status, the state and federal
government agencies will carefully review your business plan and mission statement to
ensure that the organization is eligible.

Board of Directors
Every nonprofit organization needs a board of directors as well. Those on the board should
share the commitment to and passion for the mission of the ministry.
An ideal board member for a nonprofit organization should:

1. Be able and willing to take care of any necessary tasks for the organization
2. Possess business skills that will drive the organization forward
3. Have enough time to commit to the organization
4. Be willing to aid in fundraising efforts
5. Have experience in grant-writing, or be willing to learn

A board of directors may include a pastor or president, a financial director, and/or a

coordinator. Each board member should understand their job duties and sign an agreement
to perform on the terms outlined. Your board should only include members who share your
desire to accomplish the mission of the organization, as well as your religious convictions.
After you have selected the board, the next step is drafting the organization's bylaws.
As you draft the bylaws, you will need to decide whether the church will maintain control of
the non-profit organization, or if those running the organization will be independent of the
church. If you decide on the former option for operation of the nonprofit, it is smart to
appoint the members of the church's board of directors to serve as board members in the
organization.

Required Documentation
Before you can obtain tax-exempt status, the first step is filing your nonprofit
organization's articles of incorporation with the Secretary of State's office. File these with
the state office in which the ministry will be located.
Each state has its own requirements for what must be included in the articles of
organization. However, just about every state requires:

1. Organization name
2. Organization location
3. Organization purpose
The IRS will not recognize a nonprofit organization until it has filed Form 1023, which is the
application for recognition of exemption. Every organization needs an employer
identification number (EIN), also referred to as a taxpayer identification number (TIN).
 
 

What is An Unincorporated Nonprofit Association?

What happens, legally speaking, when a group of people get together and decide to
perform some task without filing any legal paperwork or establishing any formal legal
structure? Whether they know it or not, they have formed an unincorporated
association. "Unincorporated association" means an unincorporated group of two or
more persons joined by mutual consent for a common lawful purpose, whether
organized for profit or not.
 
Now, if the lawful purpose they've joined together to accomplish includes earning a
profit, their association is automatically a partnership or joint venture for tax and most
other legal purposes. For example, if two people get together and decide to operate a
food truck, they've formed a partnership, even if they file no paperwork.

But, if the purpose for the association is to benefit the public some way, and does not
include earning a profit, the association's members have formed an
unincorporated nonprofit association. People form nonprofit unincorporated
associations all the time; often without being aware of it. For example, if you and
several of your neighbors get together to help raise funds to keep your local library
branch open, you've formed an unincorporated nonprofit association.

If an unincorporated association's purpose is charitable, educational, and/or scientific

in nature, it can qualify as a Section 501(c)(3) organization (also called a public
charity). Contributions to Section 501(c)(3)s are tax deductible. If an unincorporated
charitable nonprofit has less than $5,000 in annual revenues, it may function as a
501(c)(3) without applying for IRS recognition of its status. However, as a practical
matter, it may be difficult to obtain contributions without an IRS determination letter
officially recognizing the nonprofit as a Section 5010(c)(3) organization.

An association with over $5,000 in revenue must apply for recognition from the IRS
by filing IRS Form 1023. It is not necessary for an unincorporated association to
convert to a nonprofit corporation to obtain IRS recognition of its Section 510(c)(3)
status. However, the association must adopt written bylaws or a constitution, and
include it with its IRS application. It's probably easier to form a nonprofit corporation
than to adopt such bylaws or constitution.
The biggest drawback to the unincorporated nonprofit association, and the reason
nonprofits often abandon this form in favor of a nonprofit corporation, is that it has no
separate legal existence apart from its members. Because it is not respected as a
separate legal entity, its members generally can be personally liable for its debts and
liabilities. Some states, such as California, give some limited liability to nonprofit
association members; but it's not as good as the protection obtainable from a nonprofit
corporation. Moreover, unless your state law contains an "enabling statute" granting
such rights entities, an unincorporated association cannot hold or receive property, or
sign contracts, in its own name.

Because of these limitations, nonprofit unincorporated associations are usually used to

accomplish limited short-term goals, such as raising funds for a library. Nonprofits
with long-term missions should usually incorporate. For more on incorporating, see
Nolo's article, Five Reasons to Incorporate Your Nonprofit.

together temporarily to perform some social good. They might raise money for
a limited purpose such as helping a neighbor or sending the local high school
band to a competition. Some groups simply bring in such limited income that a
formal business model may not be necessary.

An Unincorporated Nonprofit Association

Legally, an unincorporated nonprofit association forms whenever at least two

people agree to pursue a common lawful purpose that is not for profit. If the
endeavor is for profit, it is called a partnership or joint venture.

You have probably been part of an unincorporated nonprofit association if you

joined a few other people to help raise money for a family affected by a
catastrophe. You may not even be aware that you were part of a legal
association because your intention was merely to help someone out
temporarily. You and your neighbors came together to accomplish a good
deed and then went your separate ways.

These informal groups are called unincorporated nonprofit associations. They

usually come and go as needed. However, if that group or association
continues indefinitely, it may be subject to certain legal requirements, even
though it hasn't filed for incorporation under its state's incorporation laws. For
example, an unincorporated association may need to file tax returns, whether
as a taxable or tax-exempt entity. Additionally, some states have registration
requirements.
There may also be multiple state and local registration requirements no
different from a similar nonprofit corporation, such as charitable solicitation
registration, out-of-state qualifications to do business, and local business
registration.

If your informal association continues for a period of time or plans to keep up

its charitable activities, legal experts recommend registering with
the Secretary of State even if not required and fulfilling other registration
requirements such as applying for an Employer Identification Number (EIN) to
open a bank account.

There are, however, generally minimal legal requirements concerning

corporate formalities and governance under state law for unincorporated
nonprofit associations. Thus, setting up this type of organization may be a
good alternative to a more formally organized and registered 501c3.

The Disadvantages of an Unincorporated Nonprofit Association

Members of an unincorporated nonprofit association may be exposed to

personal liability for the obligations of the association if state laws do not
explicitly provide for limited liability (for example, California provides for limited
liability for members of an unincorporated nonprofit association).

Regardless, the law is still less certain regarding personal liability as

compared to corporations. Therefore, an unincorporated association may not
be ideal if the group's activities might create concerns about contract or tort
liability (two common areas where liability issues arise), or if potential
members, board members, and supporters might be deterred by such
concerns.

An unincorporated association can operate as a tax-exempt nonprofit as long

as the purpose of its activity is of public benefit, and annual revenues are less
than $5,000. If the association remains small with limited income, the
unincorporated association does not need to apply to the IRS for 501(c)(3)
status.

The Advantages of Incorporating

As a practical matter, however, the group may want to consider incorporating

at that point. The IRS will want to see certain documents even if not required
by state law (for instance, organizing documents), and will also be checking
for common governance issues such as compensation practices and conflict
of interest procedures.

Also, without a determination letter from the IRS, it may be difficult to get

donations and almost impossible to get grants. Foundations almost always
require 501(c)(3) status before providing money to nonprofits. 

It may also be difficult to enter into contracts with some other entities (for
example, too many risks for the other party without extensive due diligence).
The group will also need to check the requirements for obtaining tax-exempt
status on the state level.

Although there may be no need to file for tax-exemption under 501(c)(3) if the

association has annual gross receipt of normally not more than $5,000, it must
still annually file Form 990-N with the IRS.

Associations may also claim tax-exemption under other categories (for

example, a 501(c)(4) or 501(c)(6) doesn't need to apply for federal exemption
even if income exceeds the $5,000 threshold).

Unincorporated nonprofit associations work best for informal, ad hoc

situations where people get together to perform some community service or
raise funds for a particular, and usually short-term, goal.

If an organization is not ready to file for 501(c)(3) status from the IRS, an
alternative may be to seek a fiscal sponsor. A fiscal sponsor is another
nonprofit that can "mentor" a startup or small non-exempt organization until it
becomes ready to file for its own exemption.