Recently, a friend asked for advice in setting up her business, intending for it to ultimately be a 501(c)(3) nonprofit organization. She reflected on how, at eXtend (our Maryland homeschool program), we were able to receive our nonprofit designation easily, without undergoing many of the hurdles experienced by others. It occurred to me that there were a number of things we did, some of which we didn’t realize until after the fact, that made this process very simple, and that this information could benefit others seeking to do the same. If this is you, I hope you can gain from our experience at eXtend.
Before we begin, I need to extend a few caveats! First, as you can probably guess, I am not a lawyer, nor am I a certified public accountant! I am an education entrepreneur, and in no way should this article be construed as legal or financial advice. I am simply sharing the steps we took to establish the structure of our program. Your program may look and function very differently from ours. When all is said and done, please consult your legal and tax advisors as you make choices for your business. With the information and resources provided in this article, I hold true to my position, which mirrors that of homeschooling and unconventional learning: do whatever works best for you in your given situation. Again, I am simply sharing our experience based on our circumstances, and as we like to say, “individual results will vary,” so please keep that in mind.
Darren Jones, the Senior Attorney with Home School Legal Defense Association (HSLDA), has a saying, “Figure out what kind of organization you want to be, and be that organization.” Knowing your identity, what kind of organization you want to be, and who you want to serve is vital to long-term success. This forms the basis for your mission and vision statements, and keeps you focused as an entity, especially during times of change, challenge, and growth. eXtend Homeschool Tutorial is a faith-based, in-person program, and our mission is to serve homeschooling families by providing affordable, quality, core academic classes for elementary, middle, and high school students. If you have not written out your mission statement to identify your core values, please do this. Having a mission and vision will provide needed clarity and focus as you make decisions for your program and for your community.
When we first created eXtend, we had a mission statement, but we had no formal structure. We were simply a group of families getting together to homeschool our kids. As we grew, it became evident that we needed to organize “for real,” and honestly, we didn’t really know what we were doing. Initially, we had to decide whether to establish ourselves as a for-profit entity or a nonprofit. As a community-focused, faith-based program, we knew we wanted the benefits of tax exemption, and we wanted what seemed to be the simplicity of organizing as a tax-exempt entity. We also knew of another tutorial (a homeschool learning environment) that we wanted to pattern ourselves after, so we asked for information from them, and we simply copied what they did. What they did was nothing short of genius, and following their lead set us up perfectly for when we finally made the jump to becoming a recognized 501(c)(3) nonprofit organization.
Our first step was to obtain an EIN (Employer Identification Number) from the IRS, which is required whether you are a nonprofit or a for-profit entity. The process was as simple as going on the IRS website and filling out a very short form that immediately generated our EIN. We downloaded that document, and it remains readily accessible whenever we need it. Our EIN allowed us to open our business bank account, and establish business accounts with Amazon and other vendors. We continue to use it as we file annual taxes, as well as for grant applications and in our interactions with other businesses and organizations.
Our next step was to fill out our Articles of Incorporation, but not just any set of Articles of Incorporation. In Maryland, there’s a form called “Articles of Incorporation For a Tax-Exempt Nonstock Corporation.” Step-by-step guidelines for drafting these Articles of Incorporation accompany this form, making the process smooth and easy. Moreover, this form contains full blocks of specific language required by the IRS that facilitate approval as a 501(c)(3) organization. While this document didn’t make us a 501(c)(3), it signaled our intent and paved the way for us to obtain federal 501(c)(3) status. Beginning with this document saved us from many of the reported headaches and costs associated with becoming a nonprofit organization.
As part of this process, we also created our bylaws, which for us was as easy as finding a template and filling in our information. This template, upon which eXtend’s bylaws are based, is specific to us as a faith-based organization. This template is not to be construed as legal advice; this is simply what we used that worked for us. There are many available resources online that you can use when creating your bylaws. When developing your bylaws, please consult an attorney with expertise in assisting groups as they form business entities.
Before we filed our paperwork with the state to become “official,” we convened a meeting of the three members of leadership, which became the de facto Board of Directors of our organization. In the early stages of formation, it is very common for those running the organization to also serve on the Board, setting the direction and handling day-to-day operations. We held an official meeting, following Robert’s Rules of Order, and during that meeting, appointed the officers of the organization, adopted our bylaws, designated the location of our principal office, authorized the opening of a business bank account, selected our accountant, and authorized the application for tax-exempt status as well as the filing of all required state and federal business reports.
Once we filed our paperwork and were approved by the state, we made the decision to continue to proceed with the process to become a full-fledged 501(c)(3). Because of our state filing as a tax-exempt nonstock corporation, we were able to visit the IRS website and apply using the IRS Form 1023-EZ. As a new startup, this was the easiest and most direct route to achieving a 501(c)(3) designation. The date stamp of our approval letter was three months from the date we filed our Articles of Incorporation with the State of Maryland, and the “Effective Date of Exemption” was listed as the same date as Maryland’s acceptance of our Articles of Incorporation! There were no lawyers, no exorbitant fees, no mountains of paperwork, no long wait. It all came down to how we initially filed our paperwork to be incorporated, and again, because we were a small nonprofit, our filing with the IRS was simple.
Once we received notification from the IRS that we were recognized as an official 501(c)(3) organization, our next step was to apply with the State of Maryland for a tax-exempt certificate. Once again, it was a simple online form that gets renewed every five years. Every state has a similar process, so you’ll want to avail yourself of that tax-exempt certificate, which can be used literally everywhere. We have used ours with Amazon, with ordering graduation supplies online, with curriculum sites, at our local printing shop, when renting space for organization functions, you name it. Having that certificate can translate into bottom-line savings for your organization.
Across multiple arenas, I regularly advise people to begin with the end in mind. If your goal is to establish your organization as a non-profit, then begin with Articles of Incorporation that reflect that. Reach out to your state’s department of assessment and taxation and find out if you are able to file Articles of Incorporation as a tax-exempt, nonstock corporation, a domestic nonprofit, or whatever designation your state uses that incorporates language recognized by the IRS that will facilitate your later application for a 501(c)(3) status. Especially as a small startup, this will make the road to 501(c)(3) relatively painless.
Whether you choose to go the nonprofit route, as we did, or for-profit, there are a number of incredible resources available to help you navigate the start-up process. As an education entrepreneur, I highly recommend connecting with VELA Education Fund, the nation’s leading network of educational entrepreneurs. VELA provides tangible support to entrepreneurs involved in the unconventional learning ecosystem. Applying for the Founder’s Network is easy and costs nothing but a small amount of time, and it unlocks the door to grants and other support. If yours is a homeschooling entity, reach out to HSLDA for specialized assistance. Another great resource is Yes. Every Kid. Foundation, offering free information and resources to education entrepreneurs. If yours is a faith-based learning environment, consider connecting with the Herzog Foundation, which provides free training and toolkits for those starting faith-based microschools, homeschool co-ops, and similar learning environments. Additionally, the US Small Business Administration can also assist with information and resources to help you form and grow your business. Finally, although we chose a D-I-Y approach, there are many available low-cost options, such as LegalZoom, that will do all of this for you, and are a Google search away.
As eXtend enters its ninth year, we’ve experienced the many benefits of establishing our business and registering as a nonprofit, and are grateful that ours was a very easy process. Regardless of the type of structure you choose for your enterprise, know that resources are available to make the business-building process smooth and productive.
