How To Start a Nonprofit in Colorado: A 10-Step Guide
There is more to starting your own nonprofit than simply filing a 501c3 application, and the rules vary from state to state. Realizing your dream of starting a nonprofit can be a bit of a complicated process, but luckily, we helped simplify matters by breaking it down into a series of steps. Here is our 10-step guide to launching a successful nonprofit in the state of Colorado.
- Considerations Before Starting a Nonprofit in Colorado
- How To Start a Nonprofit in Colorado: 10 Simple Steps
- Final Thoughts
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Considerations Before Starting a Nonprofit in Colorado
While contemplating how to start a nonprofit in Colorado, there are several factors to consider. A few requirements for incorporation and exemption are unique to Colorado law. We will go over the following in greater detail throughout this guide:
Colorado law requires that you have at least one incorporator and one director for your organization.
While Colorado offers state tax exemption after your nonprofit receives its letter of determination from the IRS, you will be required to register separately with the state.
Most Colorado nonprofits must register with the state to solicit funds from donors.
There are also a few universal tips for establishing a nonprofit. To give yourself the best start for launching a successful organization, you will want to do the following:
Define Your Mission
Before you begin with anything else, be sure that you have in writing what your nonprofit hopes to accomplish. Also elaborate on how you plan to raise the money to fund this mission. By setting down a clear path and destination, the rest will fall more easily into place.
Emily has defined her nonprofit's mission and is ready to keep moving forward!
Get First-Hand Experience by Volunteering
The best way to really understand the inner workings of a nonprofit is by observing it at the ground level. Find a nonprofit in the sector you want to work in, and offer your services. Share your own goals, and some organizations might allow you to assist at different roles to get a better understanding of nonprofit operations.
Do Your Research
It is always best to move forward with a solid knowledge of what to expect. You cannot be ready for every eventuality, but you can get a good basic understanding of how the process is supposed to work. This can save you a lot of hassle in the long run. Here are some good places (alongside this guide, of course,) to start:
If you are looking to start a nonprofit in another state, here are some links you can visit for more detailed information:
Pro Tip: No matter which state you are in, you will need to follow federal guidelines for establishing a 501c3. If you have any questions regarding how to do so, you can visit the IRS website listed above or call the Tax-Exempt and Government Entities Division at 877-829-5500.
How To Start a Nonprofit in Colorado: 10 Simple Steps
Starting a nonprofit follows different guidelines depending on which state you are incorporating in. For example, rules and regulations regarding a Texas 501c3 are not the same ones governing the formation of a Florida 501c3, a Michigan 501c3, or an Ohio 501c3. Let’s take a look at the specific guidelines to follow when forming a 501c3 in the state of Colorado.
Step #1: Decide on a Name
Finding the perfect name is an important first step in the formation of your nonprofit. Your name is your brand. It should be a clear indication of your mission in the hopes of generating interest in that cause.
Compared to other states, Colorado is fairly lenient when it comes to regulating the names you can choose for your corporation. In your name, you can use the appropriate term or abbreviation that indicates your business structure, such as corporation (corp.), limited (ltd.), and incorporated (inc.), but you are not required to.
However, your corporation may not share a name with any other business that already exists in Colorado. You can check to see if your name is free by visiting the Colorado Secretary of State’s website. If it is not already in use, you can use this site to file your name.
Step #2: Assemble Your Governance Structure
Decide how you want your governance structure to work. The only regulations within Colorado law state that you must have at least one director and one incorporator. Directors are the big-picture managers who oversee the direction and vision of the mission. They are the stakeholders in your nonprofit’s success. Incorporators are either an individual or corporation that signs the articles of incorporation.
Keep in mind, however, that while Colorado law only requires one director, IRS regulations call for at least three unrelated individuals in this role. You can organize your directors into president, secretary, and treasurer, among other offices. One person can fill two or more of these roles.
Step #3: Appoint a Registered Agent
As a nonprofit founded in Colorado, your corporation must have a registered agent for service of process. That is, you must appoint either an individual or corporation with a physical address in the state of Colorado that is available during business hours to accept important legal documents on behalf of your organization.
Matt is checking out registered agent services in Colorado.
Step #4: Prepare and File Your Articles of Incorporation
When you file your articles of incorporation with the Secretary of State, you pay $50 to legally form your corporation. Your articles must contain the following information to comply with state law:
Name and street address of your nonprofit corporation
Name, street address, and signature of your registered agent
Whether your organization plans to have voting members
Name and street address of each incorporator
Date your articles go into effect
You can choose an effective date that is up to 90 days after the filing date. For the articles to go into effect immediately, leave the effective date space blank.
The IRS will require their own inclusions for your organization to qualify for 501c3 tax-exempt status. To the previous information, add the following clauses:
A purpose statement that shares that your corporation is being founded as a charitable organization, religious institution, educational association, or other organization that benefits the public good
A dissolution clause that agrees to give corporate assets to the government or another 501c3 upon dissolution of the nonprofit
A statement that your organization refuses to participate in any political or legislative activity or any activity unrelated to its exempt cause
The online form on the Colorado Secretary of State website does not have specific spaces set aside for the IRS requirements, but you may add the dissolution statement in the "Distribution of Assets" section. You can add the other two under "Additional Information."
You can visit the IRS website to find language guidelines and samples for these clauses.
Step #5: Obtain an Employer Identification Number
Every corporation must file for and obtain an Employer Identification Number (EIN). The IRS issues this nine-digit number as an identifier to use when reporting your income or filing your taxes. You can file online, by phone, or through the mail for free.
Step #6: Hold Bylaws Meeting
As an established corporation with leaders and a vision, it is time to hold your initial meeting to get everything down in writing. The initial meeting is often referred to as an organizational meeting of the board. In this meeting, you will hammer out the details regarding your mission goals, operational strategies, and governance plans. You will also elect officers and create term limits and election regulations.
Approving your bylaws and conflict-of-interest policy are also a part of this initial meeting. You do not need to file your bylaws with the state — rather, they are the operations manual for your nonprofit that details how you plan to advance your mission. Your conflict-of-interest policy is another essential document that outlines how your board will deal with conflicts that arise within your nonprofit.
Take detailed minutes during this meeting. Afterward, file the minutes, bylaws, and other important documents physically and digitally in secure locations so that they are always accessible.
Step #7: Apply for Federal Tax Exemption
Now that your organization is fully fledged, it is finally time to apply for your tax-exempt status. You can obtain federal tax exemption by filing Form 1023 with the IRS. This is an involved and complex form that typically contains between 50 and 100 pages of documentation and takes 100 hours of labor to finish. The Form 1023 filing fee is $600.
Small nonprofits may qualify to fill out the short version of this document: the Form 1023-EZ. You must have less than $250,000 in assets and anticipate less than $50,000 in annual gross receipts to qualify. Even if you do, keep in mind that this truncated form can be controversial. Many states do not support it, and some nonprofit advocates worry that using the EZ form can prevent smaller nonprofits from being considered for certain grants.
When filing either of these forms, your nonprofit can expect to receive your letter of determination within three to six months.
Pro Tip: The Form 1023 is a difficult and time-consuming document. You are far better off hiring a professional to help complete this form. Your best bet is an accountant or tax attorney with experience in nonprofit law, as they understand the language requirements and other guidelines. You should also have a financial professional either as a permanent staff member or as a consultant to handle your annual reporting.
Step #8: Apply for Colorado State Tax Identification Number
In Colorado, your nonprofit has to apply for a sales tax account before it can apply for a charitable license. You can do this by filling out an application and sending a copy of your 501c3 application to the state at MyBizColorado. This process has an $8 filing fee.
Your nonprofit may also need a retail sales tax license if you plan to sell merchandise. To obtain this license, you have to pay a $50 deposit. You will get this back once your organization has paid $50 in sales taxes.
Step #9: Apply for Colorado State Tax Exemption
When your nonprofit receives its letter of determination from the IRS, you are also exempt from Colorado state income tax. However, you will need to file an application with the state for this exemption.
You're close to the finish line, Sadie – keep going!
To do so, gather your IRS determination letter, Colorado articles of incorporation, latest or projected financial statements, corporation purpose and function, and current Certificate of Good Standing. You can get this latter document online by applying through the Colorado Secretary of State website.
Step #10: Apply for Charitable Solicitation and Other Licenses
Finally, the Secretary of State requires most nonprofits to register their organization before they begin fundraising activities. Exemptions to this include churches that do not file 990s as well as other organizations that do not intend to accept donations from more than 10 people or raise more than $25,000 per year (not including grants).
For those organizations without exemption, you will create an account online through the Secretary of State website.
Also, while Colorado nonprofits as a whole are not required to obtain a statewide business license, some municipalities may require one. Contact your local government to find out what rules and regulations they have in place regarding licensure.
Pro Tip: Always be sure to follow not only Colorado law, but the regulations of your local municipality as well. You may have more work to do when it comes to being compliant with the latter.
Launching a new nonprofit into the world is an exciting and life-enriching prospect. However, it is easy to be intimidated by the sheer amount of paperwork required, not to mention the regulations and rules laid out by several governing bodies. But do not despair — creating a nonprofit is achievable if you work smart.
First and foremost, do your research. Next, work step by step through the process. Finally, and most importantly, get help from a professional. Your nonprofit tax accountant should file Form 1023 and handle any subsequent reporting for you. By following these tips, you will be well on your way to sharing your nonprofit mission with the world!
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💡How do I start a 501c3 in Colorado?
There are several steps to follow when creating a 501c3 in Colorado. First, you must create a legal corporation under local law. Once you fulfill all of the requirements for doing this, you can then file a Form 1023 with the IRS to obtain tax-exempt status from the federal government. Find out more.
🔑 How much does it cost to start a 501c3 in Colorado?
This can depend on several factors. Filing for incorporation costs $50, and filing for tax exemption can be either $600 with Form 1023 or $250 with Form 1023-EZ. However, you also have operating costs as well as any fees you incur by hiring a professional to assist in the process. Find out more.
📝 Can you start a nonprofit alone?
An individual can certainly be the starting point of a nonprofit organization. However, you will need an incorporator and most likely a governing board to help with decision-making. This is not an easy process, and one person would be quickly overwhelmed with the amount of work required to keep a growing nonprofit running. Find out more.