How to Start a Nonprofit in Colorado

There are two main ways to start a nonprofit organization in Colorado. The conventional way is to incorporate as a nonprofit corporation, and then apply to the IRS for tax-exempt status (501(c)(3). This process can take up to a year, except for small organizations that can apply using the EZ form.

Alternatively, you can find a fiscal sponsor, an existing 501(c)(3) organization that shares its charitable status with other ventures. While you may need to apply to work with a fiscal sponsor, the application process is much quicker and usually free.

Both methods are explained in detail below.

Using a Fiscal Sponsor in Colorado

Responsible fiscal sponsors adhere to the National Network of Fiscal Sponsors best practice guidelines. They provide an efficient, effective, and accountable way to quickly launch nonprofit activities. Fiscal sponsors provide back-office services (e.g., accounting, HR, liability insurance) and support. They charge an administrative fee to cover the cost of their work. Think of that administrative fee as your overhead.

Here are a few tips for identifying a fiscal sponsor for your work:

 

  1. Mission/Geography – Ensure a mission and geographic fit between the fiscal sponsor and what you want to do.
  2. Agreement – There should be an agreement between the fiscal sponsor and the groups it supports.
  3. Leadership – Review their staff and board lists. Is their leadership qualified and experienced in fiscal sponsorship, nonprofit management, and philanthropy?
  4. Financials – Review their financials. Are they financially strong? Do they separate each program’s financials on balance sheet and income statements?
  5. Insurance – Are they insured for a wide range of activities?
  6. Administrative Cost/Fee – There should be no surprises about what costs will be assessed to your program and what will be covered by the fiscal sponsor.
  7. Exit Agreement – There should be a clear explanation of how programs can leave the fiscal sponsor, whether becoming their own tax-exempt entity or moving to a different fiscal sponsor.

 

In Colorado, CNDC is more than an experienced fiscal sponsor. We are a partner in launching ideas and progressing the vision of dynamic community leaders. Here is more information on our fiscal sponsor services.

 

Once you identify a fiscal sponsor that is a fit for you, you can follow their application process to be approved. Once accepted, you can immediately fundraise and operate using their 501(c)(3) status. 

 

Starting a Standalone 501(c)(3) in Colorado

Fiscal sponsorship might not fit some nonprofit needs or concepts. The basic steps to launching a separate nonprofit are straightforward, but you will want to add a few steps to do it right, including seeking legal advice.

Here is a simplified guide on how to start a nonprofit organization in Colorado:

  1. Test Your Concept (This is generally part of the fiscal sponsor application as well)
  2. Talk to other organizations that are doing work similar to what you want to do. Is there an opportunity to collaborate? Is your organization needed?
  3. Create a fundraising and revenue plan. What kind of budget will you need to operate? Where will those funds come from? Fundraising for a new entity is very challenging.
  4. Are you comfortable asking people for money? Fundraising can be challenging.
  5. Will other individuals join your board or financially support your work?
  6. Identify a nonprofit tax lawyer to provide advice and guidance. (This document does not provide legal advice.)
  7. Incorporate in Colorado – This can be done through the Colorado Secretary of State website. Note that you must add a section on how you plan to disburse assets.
  8. Apply for your Federal Employer Identification Number (FEIN). You will need this number to apply for tax-exempt status and, once approved, for tax purposes.
  9. Complete Form 1023 for tax-exempt status. The EZ form is only an option for organizations that plan to generate less than $50,000 in revenue annually.
  10. Wait….
  11. After 6-12 months, the IRS will contact you with questions or approval. Once approved, you can launch your entity and begin operating and raising funds. Most funders will not fund a group until it receives tax-exempt status.
  12. Report annually to the IRS, Colorado, and other states where you raise funds or operate.
Scroll to Top