Satisfaction of Legal Requirements

As indicated earlier, a nonprofit organization starts with a vision and a mission. Vision and mission statements can be written in formal styles to share with others who might be interested in espousing them. Having a vision and a mission can be an important factor in helping to meet the requirements related to the creation of a nonprofit organization in the United States. One of the requirements is to have a board of at least three members in order to incorporate a nonprofit organization. The specific requirements, including incorporation fees, vary from one state to another. However, in every U.S. state, there is a division of corporations that receives applications from U.S. legal residents or citizens who want to either start an American or a foreign for-profit or nonprofit corporation. Articles of incorporation and other documents may be required to incorporate depending on the state. Articles of incorporation are usually provided in the form of a template that will help a state record the name of the nonprofit organization, the purpose, the names and physical addresses of the board members, the incorporator, and the registered agent.

As a corporation, a nonprofit organization must apply for an Employer Identification Number (EIN) through the IRS. The EIN is the equivalent of the Social Security Number of a nonprofit organization. It is especially necessary for future financial transactions of the organization. For example, it is mandatory to provide a copy of the EIN along with the proof of nonprofit incorporation in order to open a bank account for a nonprofit organization.

In the United States, incorporation is done at the state level. However, there is another layer of requirements to meet in order for a nonprofit organization to become exempt from federal taxes. The IRS considers every corporation a taxable entity until such corporation proves otherwise by applying for tax-exempt status. To that end, a nonprofit organization can apply for 501(c) status through the IRS. One of the most popular 501(c) tax-exempt organizations is the 501(c)(3) type. An applicant organization must complete IRS Form 1023 to apply for 501(c)(3) status. If the application is approved, the IRS issues a 501(c)(3) determination letter, which will serve as proof that the organization enjoys federally tax-exempt status. In addition, a nonprofit organization must file for exemptions at the local and state levels, depending on the state. Finally, a nonprofit organization must comply with charitable solicitation laws that may exist at the state, county, or municipal levels. This is especially important for fund-raising purposes.

Organization and Management Practices

The overall organization and management of a nonprofit organization is the responsibility of the board of directors. However, the board of directors must delegate the management and administration of regular activities to an executive or administrative body (chief executive officer, chief financial officer, development officer, program managers, project managers, program assistants, and other similar staff), which will vary from one organization to another. A compelling vision alone is not enough for a successful nonprofit organization. Strategic planning and implementation of activities are very important to fulfill the vision and mission of a nonprofit organization. A nonprofit organization must have bylaws, which set the principles and procedures to make decisions within the organization. The adoption of the bylaws is the responsibility of the board members. The board must also work with managers to develop budget, fund-raising plans, development plans, record-keeping and accounting systems, and to maintain insurance policies for risk prevention and management.

A nonprofit organization must conduct a community needs assessment to ensure that future programs will take into account the needs of the target population. Simply put, a community needs assessment consists of process and research activities for identifying the available resources of a community and the unmet needs of its people. A community needs assessment can involve extensive data collection through surveys and/or- interviews. It can also be a review of secondary data that are available online or in libraries. It can be a nominal group technique with key informants from a target population. The approach adopted depends on what an organization wants to accomplish.

A needs assessment is important because it provides a baseline of information for strategic planning. A nonprofit organization must translate its mission statement into more specific strategic goals that can be achieved within a reasonable period of time, usually 5, 7, or 10 years. The document that outlines the strategic goals and activities and resources to achieve such goals is called a strategic plan.

As the name implies, strategic goals are designed to provide the big picture to an organization. Strategic goals cannot be achieved overnight. They may never be achieved at all if there is no effort to follow through on their implementation. Specific objectives and activities, as well as appropriate strategies, must be defined into a more short-term (annual, quarterly) document called an action plan. The action plan determines the regular decisions that must be made in order for the organization to fulfill its mission and vision. In other words, the fulfillment of the vision and the mission of a nonprofit organization is an ongoing endeavor, which can succeed only if the strategic plan is translated into operational or short-term action plans. Obviously, organization and management require continuous assessment and monitoring to ensure that a nonprofit organization is on a viable or sustainable path.


This chapter provided an overview of the nonprofit organization in the United States, the main characteristics of nonprofit organizations, and the reality of the nonprofit sector today. Nonprofit organizations and human service agencies employ nearly 11 million full-time equivalent (FTE) employees, representing the third-largest U.S. industry (Salamon, Sokolowski, & Geller, 2012). The nongovernmental sector is growing throughout the world. Increasingly, these organizations are playing key roles in the economic and social contexts of their countries. Unlike private-sector organizations concerned primarily with making a profit, nonprofit organizations are focused on carrying out a specific public-service mission. Successful nonprofit organizations require substantial capability in key areas of management: developing strong boards of directors, recruiting and motivating talented staff and volunteers, creating plans to focus resources on relevant goals and innovative programs, winning the support of diverse stakeholders, raising funds, and wisely managing fiscal and human resources.

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