8 Steps to Setting Up a Charity Fund

A charity is a nonprofit organization that works for the benefit of the public with the help of volunteers and countless donors. But, setting up a charity fund is not an easy task. There are a lot of things that happen behind the scenes. You need to file paperwork, control finances, create accounts, register your organization, and even manage volunteers. For your convenience, this article highlights the steps involved in setting up a charity fund. Understand the types of charities The first thing you need to know before establishing your organization is understanding the different types of funds. Here are two types of charitable organizations classified by IRS section 501(c)(3): Public charity: Such organizations obtain a large portion of their funds from the general public and other governmental organizations. Private foundation: Private foundations are typically formed and funded by an individual, family, or a small group. It is crucial to decide the type of organization you want to set up. If not established otherwise, the IRS will assume that your fund is a private foundation. Private foundations have several rules and restrictions that are not applicable to public funds. They also have lower tax deductibles than public funds and entail expenditure responsibility, which indicates there are a lot of procedures in place to ensure the donations are spent for the right purpose. Moreover, you need to apply to the IRS to obtain the “tax exempt” status irrespective of the type of your organization. Determine the mission of your fund The second step is understanding the needs your fund will fulfill. Different organizations have different welfare missions.  Some of the most common needs are as follows: Health: These organizations are formed to aid the ill and disabled. They also support research and patient support. Animal welfare: Animal welfare foundations help with wildlife conservation, protection and well-being of animals, and rescue. Human service: Human service funds provide individuals in need with food, shelter, youth services, and family and legal services, among other assistance. Art and culture: These foundations are focused on appreciating and encouraging creative expressions of art, such as painting and performing arts, and maintaining institutions that promote such expressions, such as museums. International non-governmental organizations: Non-governmental organizations or NGOs reinforce human rights, help cope with natural disasters, and support peace missions. Decide the name and mission statement for your fund Once you’ve decided the type of charity fund and the mission, you must create a name and mission statement for it. You have to choose a name that the Secretary of State’s office will accept. Different states have different rules regarding naming organizations; however, there are some common requirements. Your charitable organization's name should not be similar to that of any other organization, and it should not contain words such as "bank" or "insurance." Once you shortlist a few names for your fund, run them by the trademark search to ensure that you do not violate any trademark. Your mission statement should be clear and concise; it should sum up the purpose of your charitable organization in one or two sentences. The mission statement explains why your organization was formed, who or what it aids, and how it does so. Incorporate your charity Any organization needs people to make decisions, handle donations and accounts, and tackle other miscellaneous tasks. You can structure your organization as a trust, an association, or a corporation. Typically, charities follow the corporate structure, wherein you need to choose a name and the state where you will be located, handle paperwork, and appoint members in. This is one of the most critical steps. Applying for a Federal Employer Identification Number Since your organization will have to constantly deal with the IRS, filing for a federal employer identification number or FEIN is crucial. The FEIN is your account number with the IRS. Note that you should only apply for the FEIN once the organization is legally incorporated. Understand the rules for the charity Different states have different rules and regulations for charitable organizations, such as obtaining a license to operate and filing annual reports regarding finances. Depending on the state you're living in, you should know, understand, and comply with these laws. Create a good website If someone wants to look up your organization online, they should be able to find a good representative website that provides all the information regarding your mission. Not to mention, having an informative and well-designed website makes your organization credible. You can also add a direct portal for individuals to make donations online. Don’t forget to add your mission statement, ways to make donations, and your “tax-exempt status” to the website. You can also feature the members of your board, testimonials, how people can volunteer, and current activities. Don’t forget the insurance Since you will have employees working in your organization and will be dealing with lots of money, you must opt for insurance. An insurance agent will guide you best regarding the types of policies you should get. Most charities have general liability insurance, employment insurance, property insurance, and cyber liability insurance. There are also other aspects of setting up a charity fund. You need volunteers to figure out how to raise funds and set up the organization's financials. Although this task is tedious and lengthy, with the help of some planning, you will be able to get through it and set up your charity fund to help those in need.