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5 Things Every Nonprofit Organization Should Know

DECEMBER 18, 2015
Rebekah Harrison and James Radke
Starting an advocacy group for a rare disease is often an ideal way to raise awareness, provide patient assistance, and increase drug development for a rare disease. 
 
However, starting a nonprofit takes work. A lot of work.  And even though they are not for profit, moneys are involved and as such – so is the internal revenue service. Below are 5 things you need to be aware of regarding the organization and finances of a nonprofit organization.

1. What does it mean to be nonprofit?

A nonprofit organization is any organization in which those who control or support it do not earn a profit. The organization itself can earn a profit and even invest those profits (in the stock market, for example) in hopes of earning more money. However, all of the money made must go back into the organization - there is no profit sharing among members. Nonprofit organizations don't technically have any owners.

2. Who grants a nonprofit its status?

Individual states, not the federal government, grant official nonprofit status. They may do so in slightly different ways, and give slightly different advantages for obtaining it. However, the federal government can also recognize nonprofit status.

3. Some advantages and disadvantages to being a nonprofit

If an organization has obtained 501(c)(3) tax exempt status, an individual's or company’s charitable contributions to this entity are tax-deductible. That can often be a great incentive for people to donate to a charity (especially before the end of the year). Another important advantage to having a nonprofit organization is that  the founders, directors, members and employees are never personally liable for the organization’s debts.
 
However, while the advantages are enticing, there are some disadvantages to starting a nonprofit. Creating a nonprofit organization takes time, effort, and money. The paperwork is extremely detailed. Also, because a nonprofit organization is a legal entity under federal, state, and local laws, the use of an attorney, accountant, or other professionals are often necessary.
 
Also, finances are open to the public which may incur public scrutiny.

4. How to apply for nonprofit status

When it is time to file for nonprofit status, advocacy groups should hire a legal counselor to help make the decisions and guide them through the process. It is also important to decide the state that you want to apply for nonprofit status - usually, this will be your home state but some states have laws that are "friendlier" to nonprofits or to particular causes. Contact the Secretary of State's office to learn more about the procedures for filing. Be sure you understand the state's ongoing requirements for reporting and renewal process for the future.

5. You need to view the nonprofit as a corporation

Although many nonprofit organizations begin around a kitchen table with simple goals of doing bake sales or 5K runs to raise awareness and funds, once the organization has filed its paperwork to be a nonprofit organization, it is extremely important that it be organized and run like a business. Lawyers, accountants, etc are highly recommended. While they do cost money, they often understand the nuances of state or federal laws that can help the organization while also providing experienced guidance as the nonprofit grows. Most nonprofits begin with caregivers who know little about nonprofits. It is often best to surround yourself with professionals and to you the numerous resources available at sites like Global Genes and NORD to assist you.  
 


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