How to Start a Nonprofit: Filing a Form 1023

hi I’m Tim CEO founder of Apple software
I’ve helped start a number of nonprofits and worked at a church for a number of
years so I’ve gone through this startup process a bunch of times it’s not as
difficult as it seems when you do your first one it’s challenging when you do
the second one it’s like oh I remember how to do all this stuff and after
you’ve done a few of them you realize it if I just know the steps and the
checklist then it’s it’s pretty easy to do filed articles incorporation with the
secretary of state scheme I to bring the entity into existence I called the IRS
and got an EIN not exist there I drafted and signed in corporator minutes
relinquishing control of the board that I’ve decided if you will the board
then had board minutes where they adopted the rules by which they’re going
to operate which are the bylaws then what we do is we draft the we fill out
the form 10 23 which is the tax-exempt application so when you have your your
corporation formed with the Secretary of State and you need to turn it into a
non-profit corporation that basically what you do is you submit at 10:23 with
the IRS that is the tax-exempt application with the IRS there’s some
steps you have to do before you submit it so basically when you formed the
corporation with the Secretary of State it was you the individual that signed
the document saying this nonprofit ought to exist now when I’m submitting a 10:23
to the IRS that’s on behalf of the corporation or the entity so you have to
draw a link there between the two saying yes I’m a part of this thing and I
deserve to be able to file and it’s a thing and so there are some steps that
have to take place one of the first steps that you do when you
after you form the corporation with the Secretary of State is you draft what’s
called in corporator minutes and that’s where you’ll basically draft minutes
Board minutes which just think of a word document the word document outlines this
is what we talked about so there’s nothing special about minutes
it’s just notes of a meeting and so you’ll draft incorporator minutes these
incorporate our minutes are you as the incorporator you incorporated this thing
you draft minutes and you say I’m signing over basically ownership of this
corporation to these people and that’s basically where you can outline the
beginnings of a board and you’ll say here’s here that are the people now in
control and so you basically hand over I no longer can just sign on behalf of
this thing as a person now I’m giving over control to the nonprofit itself and
it has a board so you want to make sure that you have the right people on your
board you want to make sure that you don’t sign that over somebody that you
are not going to want in the long run because you’re giving control this thing
over they now basically own it as soon as you do that incorporate our minutes
and you sign that now they have control and then the thing you want to do
immediately after that is have your first board meeting in your first board
minutes and so a lot of times this all happens at the same time
you basically draft your board minutes you draft your corporator minutes you
sit with your board and you all talk about it and you all sign all these
documents and so what it looks like on the board minutes is these are guys now
I have control this thing and they assign who are the officers they
assigned any other directors that they want to or appoint any other directors
that they want on the board with them and they basically in the first minutes
also adopt the bylaws so bylaws it our governing documents bylaws think of a
word doc that’s you know 10 pages long or longer however long
and it basically outlines this is how this entity is going to run these are
the rules by which we’re going to run the sanity so there’s four people on the
board three of them want to buy a building and one of them doesn’t can you
do it or not so that that’s what the board the the bylaws talk about they say
you know this is what the president officers role is this is the
vice-president this is the treasurer’s role and this is what they do and their
responsibilities and then here’s how we’re gonna make decisions these things
require unanimous vote these things require supermajority vote these things
require simple majority vote these things don’t require you vote the
executive director the nonprofit can can just make these decisions so the bylaws
outline a lot of that kind of stuff how meetings will be held and how often and
how many people can be on the board you know and that kind of deal so the bylaws
are a lot of work to draft there are a lot of good examples on the internet
that you can pull down and and use this kind of guideline and then you want to
make sure that you tweak it to make it kind of yours or how you want to operate
it’s probably not bad also with the bylaws to have an attorney or someone
look over them you could have them draft them if you’re looking to save money you
can kind of draft what you think and have them look it over and they’ll tell
you where your might be tripping up but once the bylaws are drafted so to kind
of go back I’ve got this corporation that’s been formed with the Secretary of
State I used Articles of Incorporation I filed those with the Secretary of State
now this thing exists so now I’m gonna go find who do I want on the board I’m
gonna draft my bylaws I’m gonna draft incorporator minutes in my first board
minutes we’re all gonna meet together and the incorporator minutes are where I
basically sign over the entity and I say I’m no longer gonna be the sole decision
maker for this thing these people are now in control then
the board now has its first meeting now that I’ve given them control and
relinquish control and then they have these minutes minutes are just the notes
of what happened in a meeting and in the first board minutes the newly appointed
board basically adopts bylaws the bylaws they’ll they’ll basically put in the
minutes we the board adopt the bylaws dated whatever there’s a sentence in
there and then you attach the bylaws of the minutes they all sign the minutes
and you put them in a file cabinet never to be seen again
so that’s the first board minutes the bylaws now are drafted now you know the
rules of operating the internet all of that’s required in filing your 10:23
with the application you attach all these documents to it you mail it to the
IRS the documents you attach are things like an expedite request policies and
procedures that you’ve adopted the bylaws and that kind of thing you mail
all the IRS the IRS then if you’re approved gives you what’s called an tax
determination letter that letter comes in the mail it’s one or two pages and it
basically says you are approved this entity is approved to be a tax-exempt
entity under you know 501 C 3 and so with that letter now that’s your proof
that you’ve gone through this application process with the IRS and the
IRS is okay with you being not paying taxes income taxes so you’re not quite
done yet the next thing you need to do is get exemption from your state agency
so just because you know companies pay taxes are people in most states to the
state as well as the federal government so now you’re exempt from the IRS
doesn’t mean you’re exempt from the state most states just want to know that
you’re exempt with the IRS and then they’ll say okay you’re good with us too
but you have to go through that process and so in California I believe it’s the
FTB 3500 is the form kind of like the IRS form is the 10:23 so you’re gonna
want to google your state agency and figure out what the application is with
the state and then read the instructions for that and for many of them it’s you
fill out the first page or name an address everything and then include your
tap your tax determination letter that you got from the IRS so you want to go
through the federal process first all the way get the approval attach it now
send it off to the state now you’re good with the state so that’s the typical
path there so it’s possible that you would not be approved the first time you
submit your form 10:23 to get your taxes and status that’s not terribly uncommon
I’ve a couple of nonprofits that I’ve helped get started actually a madam
kickback and most of the time they’re just looking for more information or you
filled something out incorrectly a lot of nonprofits sell things like a thrift
store sells things so if they fill out and say hey we’re gonna have a retail
store it’s like well why should that be tax free so a lot of times they’re just
looking for more information or they’re pushing on a should this really be tax
exempt what’s goes on there with that there’s actually a ruling that takes
place the IRS will give you what’s called an advance ruling and the advance
ruling is a basically a five year grace period to prove that you’re tax-exempt
and so what that is is they basically each year when you turn in your 990 your
informational tax return there’s a schedule that you have to fill out which
is how you outline this is where all of our money came from and you basically
say the public is supporting this charity the IRS basically gives you five
years worth of data to accumulate to prove that it’s not just a tax shelter
all the money is coming from this one individual that’s trying to you know
pass their money through you or something and so five years of that
you’re allowed to go and be an entity try and figure it out try and get your
grassroots move go and raise money and then at the end
of five years each year you’re turning in this document Bay this is I think
it’s the Schedule A in the 990 and so at the end of the five years they’ll give a
definitive ruling I think is what it’s called and that’s where they basically
say okay it’s no more no more basically double checking you’re good to go you

7 thoughts on “How to Start a Nonprofit: Filing a Form 1023

  1. Hi, this video is soooo good. I have a question though. With the documents sent to the IRS along with the 1023 Form do we also need to send our minutes? (Inc. minutes as well as board minutes)

  2. For irs purposes how many different people have to be on a board and one person can hold multiply seats correct ?

  3. My next step is to go to the secretary of state office in Los Angeles, to file incorporation. Thanks you are guiding me

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