Franchise Business Models:

Area Development Franchises

The area development franchise license usually grants the franchisee the right to open a certain number of franchises in a given area. There is usually a production schedule where the franchisee must open a certain number of franchises during a certain period. As the franchisee stays on track in opening the franchises in the area, she has the exclusive area where no other franchisees can be allowed to open a franchise. As the franchisee acquires an area and eventually pays royalties, usually there are reduced franchise fees in the beginning and reduced royalties ongoing. Buying a franchise area developer territory requires that you are a “people person” since you will be working with franchisees in your territory and prospective franchisees.

Territory: The area development franchisee maintains an exclusive geographic territory as long as the opening schedule is maintained. The territories range from a small city to parts or all of a larger city.

Level of participation: The area development franchisee will be very involved in the beginning of the first store to make sure it is successful. Another important function will be to look for qualified real estate to open the next few locations. Once several locations are open, the franchisee will need additional assistance to manage several units.

Typical liquid capital required: $60,000 to $120,000 initially to secure the area development franchise area, pay all franchise fees and have additional start-up capital. The franchisee will then need to be able to finance the rest of the start-up costs for each franchise as it opens. These are general numbers and may vary significantly for some opportunities.

Master Franchises

A master franchise allows the franchise company to expand in a specific territory, often a major market or in one or more states. Sometimes called a regional developer, a master franchisee has all the rights of an area developer and usually takes on a larger area. The main difference is that the master franchisee in addition to opening franchises at a much reduced franchise fee and royalty can also sell unit franchises, multi-unit franchises and area development franchises and make a nice return on the sale. Buying a franchise master usually receives a part of the royalty paid by each franchisee. There may be additional income available from distribution of products through the franchisees in the area and possibly even some real estate interest. The master becomes almost like a franchisor in the area without having to experience all the trial and error the original franchisor went through. The master franchisee will usually want to open at least one unit internally to operate for income and use as a training ground. Master franchises are rare. Most franchisors do not offer them. When they are available they are usually sold quickly. The income available from a master franchise can be extremely lucrative. The initial investment is low compared to the type of value you can build in the master franchise asset. The flexibility is also the greatest at this level.

Territory: Most franchises usually cover a large metropolitan area, an entire state or even several states or country. It is an exclusive area and will remain exclusive as long as the master franchisee meets the development schedule of franchises in the territory.

Level or participation: The master franchisee will usually set up at least one unit internally and use a manger to manage it while working on selling other “subfranchises” and helping them to operate properly. Very rarely is a master franchisee “hands on” in a unit franchise. They tend to spend more of their time operating like a business consultant or coach to their franchisees to help them become successful.

Typical liquid capital required: $100,000 to $250,000 is needed to acquire the master franchise territory and for initial liquid capital to start the area. Financing will be secured for the start-up of the unit franchise. Again, these are general numbers and may vary significantly for some opportunities.

Franchises work by increasing profits for large companies by having someone else pay for the starting of a business, and in turn offering the franchisee proven systems of success and a name brand. It also takes hard work, dedication and commitment to make a success of it – just as it does with any business idea.

What do you need to know before purchasing a franchise:

• The advantage that you have in franchising is that you are leveraging the brand of a bigger organisation and benefiting from the input that they can give you – in the form of design, advertising, marketing, sales advice and training.
• Find out who else operates this franchise. Has anyone else made it succeed? Are they successful and are the costs and revenues anticipated by the franchisor realistic? You should be able to see the financial records of the franchisor’s business and see how it works.
• Compare the opportunity you’re having with those available elsewhere. Does the product you’re going to be selling compare well with the opposition? How difficult will it be to find customers? Are other franchisees operating successfully?
• Is the business viable? Is it legal and ethical? There are plenty of scam ideas around, with fraudsters offering vast sums of money for ‘work at home’ franchises. These are not proper franchises and, in many cases, are simply a ruse for separating you from your money.
• Does the business appear capable of supporting the marketing, advertising and training that it has promised you? Don’t panic if you don’t have the requisite product skills. What does matter is that the franchisor provides training to get you up to speed.
• Budget carefully. Some franchises make clear what your maximum revenues are likely to be. Check the financial projections carefully because your stage payments to the franchisor will be going out anyway. If your business isn’t making sales targets, you’ll find yourself massively out of pocket if you’re not careful. Get your accountant or lawyer to check the numbers in detail.

When choosing a franchise avoid:

• Purchasing a franchise that does not offer adequate training or support.
• Spending several weeks of your precious time and effort trying to find the perfect franchise, but never finding it.
• Settling for the wrong franchise, when one of their competitors might have been a better investment.

So, before you spend a tremendous amount of time searching endlessly for that perfect franchise, make sure you are right for the business model itself. If not, don’t despair. There are other ways to “own what you do.”

Franchising is not an easy option and it can fail just like any other unsuccessful operation. If you’ve invested your home in it, you could lose it just as if any other business venture was financed by putting your home on the line. You should be prepared for a lot of hard work to make it succeed. Remember also that you won’t be the only person sharing in your success if everything goes to plan.

What makes a good home based business opportunity? Most important is whether it is the right opportunity for you. There are many different reasons why people want to work from home. Some may be tired of the daily commute. Some may be living in a remote part of the world where jobs are few and business opportunities even fewer. Some may be more interested in work at home opportunities to allow them to earn extra money while they have to take care of children or elderly relatives. Others may be looking for a way to start their own business and home seems the ideal base from which to start off their enterprise.

You can make a full-time living with your home business if you setup correctly, get started right, and choose a business at which you are likely to succeed. To do that you should look and all the business opportunities that are available to you. There are very many home business opportunities and you want to be sure that you’re making the right choice.

If you are now looking for a business, doing market research, or just wondering if you can find a home business that would be good for you, we recommend these:

1. Internet home based business. An Internet home business will give you the flexibility to work where you want to, when you want to, so you can control your working hours and mix it in with your daily home routine. There are many business opportunities online that promise to bring you riches beyond your wildest dreams.The lifeblood of any Internet business is traffic. Without it you have no business. There are many ways to drive traffic to your site and you should investigate all or most of them and pick a method that suits you. Then focus on that method until you get good at it. When you identify your home based business opportunity it is good to use pay per click ads which is the fastest way to get traffic if it’s in your budget. You should also be using search engine optimization tactics to help the search engines find your site and bring you free traffic.
2. Affiliate marketing. Affiliate marketing has the potential to make you rich, and the best part, your allowed to be creative all day long. If you are looking for a great home business opportunity but don’t know where to start, consider affiliate marketing. Many people decide they want to work at home on the Internet or even start their own online business but don’t know what steps to take. You may have considered joining a company such as the Pampered Chef or Avon or Mary Kay and selling items for a living, but realized the party hosting, door to door lifestyle just isn’t your thing. If you want a home business that can be done without any public interaction, definitely consider affiliate marketing. With affiliate marketing, you promote someone else’s product and when you make a sale, you get part of the profits.
3. Network or multilevel marketing (MLM). Network marketing by definition requires building up a down line of other sellers who earn you money from the additional members you recruited and from the products they sold. Having a down line is really great because it allows you to earn passive income, money that you don’t have to work for to receive. Some of these programs requires fees to join them. The fees can often times be very excessive and the company will usually try to up sell you into buying additional products like training materials and samples. These materials are design to help you promote their products or services.
4. Sell Products online. One most common way of earning money is by selling products in the internet. In order to succeed, you must pick one product that customers are willing to buy. In addition, you should have a site and you must have techniques on how to attract visitors to your site.
5. Create web content. Another method of Internet home based business is article marketing. Creating compelling web content (articles) is essential for success online. All Internet surfers, shoppers, workers and researchers turn to the Internet as a source f information and news in the first instance. Their secondary action is to buy/ sell/ recommend or sign up. You need to ensure that you are providing great content first and then directing your reader to an action.There are a great many ways to put content on the web. Ensure the information that you are putting out there is informative, original, correct and useful and you will find the increase in the traffic to your website. Web content is information about a particular subject that is written in a concise, knowledgeable and professional way. It can be presented in the form of a webpage, blog, article or forum post. All of these mediums all for other Internet users to search for and find your content – particularly if it is based around a specific keyword. If you write your content well, include a link back to your original blog/website and SEO your content well, you will have an excellent library of content on the web that continually links back to your website/blog. With article marketing you write articles that have links back to your site and submit them to article directories. This will build links pointing to your site and over time will drive traffic directly from the articles.
6. Click On Some Freebies. The freebies that may suddenly appear through your screen may cause annoyance, however, you can actually earn some money from them. So, click some freebies that you may encounter while surfing because who knows you might just earn the amount you need without ever costing you a penny.

When you are pursuing a home business opportunity you do not have to spend a lot of money to start your business. There are very many things at you can do to make money with your home business without having to spend a lot of money on an Internet store, in a web site, or expensive inventory.

Start working on your own personal wealth and stop working on the clock. Earn what you’re worth and make that change TODAY!

Web/Graphic Designing

The web and graphic designing industry is a very dynamic one and constantly requires an influx of innovative ideas. If you have creative ability along with the technical knowhow, starting your own web or graphic design business at home is a great option.

Tutoring

Teaching or tutoring at home is very good business option. You can conduct tutorials at your home for young children from your neighborhood or the nearby school and help them in their studies. Teaching does not require a lot except a keen interest in helping students and good communication skills apart from basic knowledge about the subject. Read more about tips on starting a tutoring business.

Instructor

If you have learnt and practiced yoga for a considerable period of time, and can do all the exercises well, you can become a yoga instructor. It is not always necessary to have a studio to perform yoga. You can teach yoga to people by personally visiting them at their residence or have them over at your place.

Consultancy

People who are experts in a particular field and have all the necessary knowledge about the same, can start a consultancy service of their own. The expertise can be pertaining to any field like marketing, financing or law. Clients can be visited at their homes or you can even have them over at your place. Read more about starting a consultancy business.

Home Care Provider

As many young couples are working, there is a constant need of baby sitters and people who will take care of senior citizens. You can set up your own day care center or even visit people’s homes for providing home care services. If you love kids and enjoy taking care of elders, this should be a good home based business opportunity for you.

Planning Services

For people with good organizing skills and a lot of contacts, offering wedding or event planning services is a great home business opportunity. Planners need to be innovative in their ideas and constantly on the move during the events. So make sure you have the necessary energy apart from the skills.

Personalized Services

People can make and sell gift baskets, candles, cakes, foodstuffs, wall hangings etc. The best part about this is that these items can be personalized as per the requirement of the clients since it is a home based business. Selling these products on-line is also an option to make some extra money.

Before You Begin.

1. Preparation. Starting a successful business requires a great deal of preparation.

2. Planning. It helps to begin with a plan. A business plan is a blueprint of every aspect of your business. Sales, marketing, advertising, promotion and location are just some of the aspects of creating a plan.

3. Select Your Business Name. Choose a business name. A sole proprietor may conduct business under their own name. When you are ready to select a business name or assumed business name for your business, check for name availability.

4. Choose a business structure. Select a business entity type from the following list for a brief overview of the principal types of legal business structures. A legal representative and accountant should be consulted before making a determination as to the type of business entity to form.

• Sole Proprietorship
• Corporation
• Nonprofit
• Limited Liability Company
• Limited Partnership
• General Partnership
• Limited Liability Partnership

5. Register Your Business. Ongoing Registration Requirements. Now that you’ve established your business and fulfilled the initial requirements, you will want to make sure that you keep your reporting and registration obligations current.

6. Understanding Tax Obligations. Understanding your tax obligations is an important consideration for any business. Learn about requirements to report personal property to your county assessor’s office. Also check on other taxes that may apply to your business.

7. Check Licenses. Many occupations and business activities require special licenses, permits, or certifications from state agencies or boards. Check with your city and county government to determine the license, permit, or zoning requirements for your area. Many occupational or business licenses require annual renewal. Check with the specific licensing agency for specific requirements.

8. Protect your idea. Learn about registering Patents, Copyrights, Trademarks, and Service Marks.

9. Check with the Department of Environmental Quality. Some business activities will require you to contact the Department of Environmental Quality.

When you are thinking of ideas to start your own business, make sure you choose an area of your interest as you will be self motivated and also enjoy going about the setup process.

Involve people who are close to you and can be trusted. Apart from the support they provide, you can also take necessary inputs and any other monetary or technical help from them in starting your own business.

When you decide to start new business, there are a lot of important decisions to make and there are many rules that must be addressed and procedures that must be done. While there is no single source for all filing requirements, the following 7 steps will help you in starting new business.

1. Select your business name
2. Begin with a business plan
3. Choose a business structure
4. Register your business
5. Tax obligations
6. Check licenses
7. Protect your idea

Select your business name

Choose a business name. Ideally, your business name should convey the expertise, value and uniqueness of the product or service you’ve developed. A sole proprietor may conduct business under their own name or they may choose to use an Assumed Business Name.

Begin with a business plan

Business plans are working documents that strategically guide your business, and are invaluable for obtaining financial support and backing. A business plan is a checkpoint of every aspect of your business. Sales, marketing, advertising, promotion and location are just some of the aspects of creating a plan.

Choose a business structure

Select a business entity type from the following list for a brief overview of the principal types of legal business structures available. A legal representative and accountant should be consulted before making a determination as to the type of business entity to form.

• Sole Proprietorship
• Corporation
• Nonprofit
• Limited Liability Company
• Limited Partnership
• General Partnership
• Limited Liability Partnership

Register Your Business

You can do it on your state’s business site. All you have to do is fill in your info and they do all of the filing with the state for you and they just mail you your documents that you put up in a safe place for your records.

Tax Obligations

Understanding your tax obligations is an important consideration for any business. Learn about requirements to report personal property to your county assessor’s office. You will also need to check on other taxes that may apply to your business.

Check Licenses

Many occupations and business activities require special licenses, permits, or certifications from state agencies or boards. Cities and counties may also require businesses to have a license or permit in order to operate. Please check with your city and county government to determine the license, permit, or zoning requirements for your area.

Protect your idea

Learn about registering Patents, Copyrights, Trademarks, and Service Marks. Some business activities will require you to contact the Department of Environmental Quality.

Determine if you comply with the Americans with Disabilities Act (ADA). Many businesses are subject to this federal law that prohibits discrimination against disabled persons.

Many occupational or business licenses require annual renewal. Please check with the specific licensing agency for specific requirements.

Though part of your overall plan, you’ll need to select a location, decide on a business structure, and obtain the necessary licenses and permits. In addition, determining which financing options will meet your short-term needs and long-term goals is crucial.

1. You are your own boss – Sick of your manager giving you a hard time in a job you loath? If you start up your own business, the only person you have to answer to is yourself. Being your own boss gives you the freedom to do things your way and implement your own plans. Of course, you live or die by your decisions, but that’s what’s good about it isn’t it?
2. Fame and recognition – It is the opinion of some that this is an important reason why people start companies.
3. You get to do what you’re interested in – If you are stuck behind a desk selling insurance over the phone to uninterested pensioners, the chances are that you would rather be doing something else. The good thing about being an entrepreneur is that you choose what kind of firm you start up, and where. So, providing that you’ve done your research properly and there is a gap in the market, you can turn a hobby or interest into a profitable enterprise.
4. You participate in all aspects of a business - there is nothing more exciting than to be broadly involved in the operation of a business. The entrepreneur helps conceive the product or service, helps design it, goes out and gets orders, makes sure the factory runs well, helps the customer put it into operation, and finally sees the effect that all of this has on the profits of the firm.
5. Meeting your own targets can be a huge motivation to work hard and drive the business forward. Start your own firm and you get to set and meet your own deadlines.
6. Get creative – If you have considered going it alone, you will have thought out how you would do things your way. Being an entrepreneur gives you the freedom to express yourself and develop your concept in any way you choose. Of course, there are always financial constraints, but the ability to be as creative as you like is far more appealing than a one-dimensional job that a monkey could do one-handed.
7. Joy of winning – Entrepreneurs are the ultimate achievers. They like to win. Starting a company is a good way to satisfy the achievement instinct. Starting a new company, working for a new company, being involved in any way with a new company is just plain fun. It is satisfying and exciting. We spend more hours at our job than at anything else we do. Why shouldn’t we enjoy it?
8. It’s not that hard to do – The news is full of stories about the amount of red tape and taxes that small firms have to face on a daily basis. However, over the past few years, several measures have been introduced that should make it easier to go it alone. From the Small Firms Loan Guarantee to various inner-city projects, the government certainly can’t be accused of doing absolutely nothing for budding entrepreneurs. With the Prince’s Trust, Shell LiveWIRE and other support organisations also up and running, you should be able to secure the help and funding needed to get you started.
9. Personal financial gain – business can be very profitable! If you think that it’s just large corporations that make big profits, you would be wrong. There are countless stories of entrepreneurs hitting on a great idea, exploiting it well and being well on their way to their first million by the end of the year. Although the startup process can be tough, with long hours and little money not uncommon, if you run your business well, the rewards can be huge. Gains can come more quickly and can be much greater than when working for someone else. For most people becoming an entrepreneur is the only way available to make a lot of money. And, from a purely selfish point of view, you will get most of the profits yourself.
10. You can have a second career – Of course, if you don’t fancy giving up a regular income, you can always get the best of both worlds and stay as an employee while running your own firm. Although juggling the two can be tricky, having a successful sideline should be very profitable option. Do something that you are interested in and go for it.

Whether you’re starting new business on the side while still employed elsewhere, a student or homemaker looking for extra income, or unemployed and trying to figure out what to do, there are plenty of opportunities for you to start up a side business inexpensively. It’s unlikely any of these will make you a living in the first few months, but they all have the potential to grow into full-time businesses. So what are you waiting for?

STEP 1 Business Ideas

To start a business you will need to choose or create a business idea. While this is an obvious step many people who want their own business don’t have an idea, just the desire to be an entrepreneur. For the budding entrepreneur, there are many options; buying a franchise or an existing business, or looking to others for ideas for a start-up business. Once you have decided on the business you wish to start, then the real work begins.

STEP 2 Business Plan

Writing a business plan is your next and most important step, this is how you and others will evaluate your business. When seeking financing the investors or lenders will want to read your plan before they supply you with funding. If you’re financing the business yourself, you will still want to have a written plan to develop business strategies and financial projections. A key element within the business plan is the marketing plan, which explains marketing strategies that will be used to advertise and promote the products or services. The goal setting steps of the plan will help you to analyze the success of the business in future years and clearly illustrate the capital needed to operate the company to break-even.

STEP 3 Financing

With your business plan in hand, you are ready to go find yourself some capital. Most small businesses have three options for financing: friends & family, investors or bank loans. Each of these options has different considerations for the business. Investors and even friends & family usually want ownership and control of their portion of the business. Bank loans burden the business with an additional expense of the loan payment, which can erode the business profits.

STEP 4 Getting started

You’ve got the plan, the money and the enthusiasm; you’re ready, right? Not yet, as with everything you need to take the legal issues into consideration. First you should choose a legal structure: Sole Proprietorship, Partnership, or Corporation. Your financing decisions will have an effect on what legal structure you choose. Now you can file with the state to incorporate and obtain a federal Identification number.

STEP 5 Opening the Doors

Okay, it’s time to get on the road to making some money; this of course means spending money. Where are you going to run your business? Will a home office do or is commercial space needed to service your customers? Do you need to hire employees to help you run the business? What are your bookkeeping needs, do you need an accountant? Finally, who could forget taxes, what taxes do you have to pay and collect? Now that your business is through the start-up phase, you can now look forward to the issues of managing a small business.

Sourse: businesstown

Contrary to popular belief, you don’t need a huge outlay of cash – or any cash at all – to launch new business. Here’s how to start new business:

1. Stay at home. Renting office space is expensive and unnecessary during the first several months while starting new business. If your home is not conducive to concentration, create a movable office by working in coffee shops or other locations with free wi-fi. For professional meeting arrangements, pick a reasonably priced, but nice, restaurant for lunch. If you absolutely need an office, see if your town or city’s economic development office provides low-rent incubator space for new businesses.
2. Learn financials. It is helpful to know how to read financial statements even if you plan on hiring a bookkeeper or accountant when your business takes off. Self educate through the web. Learn the basics of balance sheets and income statements.
3. Hiring employees is another expense you can avoid in the start up phase of your business. If you don’t have cash to hire experts, but desperately need a graphic artist, writer or web designer, see if there is a pool of students you can draw from a local college or university internship program. Or, learn to do it yourself until you are making enough money in your business to hire a professional.
4. Once you have a website, let all your friends, neighbors and family know you have started a business (and include a link to your site); encourage them to forward the news on to their friends and business associates.
5. Become your own PR person. Learn the basics of writing a press release and send out an announcement to your local newspaper and trade publication about your new business. Post helpful advice (just don’t blatantly self promote) on blogs or online networking groups about your area of expertise.

And remember: being in business for yourself means starting early in the morning, working late into the evening most days, spending long Saturdays and busy Sunday afternoons with your new “baby.” It’s going without a vacation because there is no one else to operate and run the business when one is away.

Now, after reading all of this, is it worth it, this “going into business for yourself?” The answer is definitely “YES!” as long as you know what is needed, how to fill the need, and can fill it, and have the energy and desire to get the job done.

Forming a non-profit corporation is much like creating a regular corporation, except that non-profits have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. Here is a business technology about what you need to do:

1. Obtain nonprofit materials from your state’s corporate filing office.
2. Choose an available business name that meets the requirements of state law.
3. File formal paperwork, usually called “articles of incorporation,” and pay a small filing fee (typically $30 or $40).
4. Apply for your federal and state tax exemptions.
5. Create corporate “bylaws,” which set out the operating rules for your non-profit corporation.
6. Appoint the initial directors. (In some states you must choose your initial directors before you file your articles, because you must list their names in the document.)
7. Hold the first meeting of the board of directors.
8. Obtain licenses and permits that may be required for your corporation.

Contact your state’s corporations division

Your state’s corporate filing division, usually part of the Secretary or Department of State’s office, will often supply a packet of nonprofit materials that will be immensely helpful to you in forming your nonprofit.

This packet should include sample or fill-in-the blank articles of incorporation and your state’s nonprofit corporation laws. It should also contain a filing fee schedule, as well as forms and instructions for checking the availability of your proposed business name. Contact your state’s corporate filing office to obtain this packet.

Choose a business name

Before you form your nonprofit corporation, you need to decide on a name that complies with the rules of your state’s corporate filing office. The information packet you receive from the filing office should contain your state’s rules, but the following guidelines commonly apply:

• The name of your nonprofit cannot be the same as the name of another corporation on file with the corporations division.
• The name must end with a corporate designator, such as “Corporation,” “Incorporated,” “Limited,” or “Corp.,” “Inc.” or “Ltd.” (This is required in only about half of the states.)
• The name cannot contain certain words prohibited by the state, such as Bank, Cooperative, Federal, National, United States or Reserve.

Your state’s corporations division can tell you how to find out whether your proposed name is available for your use. Often, for a small fee, you can reserve the name for a short period of time until you file your articles of incorporation.

In addition to confirming that another corporation in your state isn’t already using your proposed name, you must make sure your name won’t violate a trademark owned by another company (in your state or out of state). To do this, you’ll need to conduct a trademark search.

Once you’ve found a legal and available name, you aren’t usually required to file or reserve the name with your state — when you file your articles of incorporation, your nonprofit’s name will be automatically registered.

Prepare and file your articles of incorporation

After you’ve decided on your business name, you must prepare and file “articles of incorporation” with the corporate filing office. This document goes by a different name in a handful of states; your state may instead use the term “articles of organization,” “certificate of incorporation,” “certificate of formation,” or “charter.”

Your state’s corporate filing office will usually provide you with nonprofit articles of incorporation — either a fill-in-the-blank form or a sample on which you can base your articles. Although preparing this document isn’t difficult, you do need to include specific language to ensure that you’ll receive tax-exempt status. Your state’s nonprofit formation packet, if available, may include the required information. If not, or if you need help understanding the requirements, consult a good legal self-help guide such as How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo), to make sure your articles comply with your state’s nonprofit law.

Apply for your federal 501(c)(3) tax exemption

After the corporate filing office returns a copy of your filed articles, you can submit your federal 501(c)(3) tax exemption application to the IRS. (The IRS requires you to submit a copy of your filed articles with your application.) This is a critical step in the formation of your nonprofit organization since most of the real benefits of being a nonprofit flow from 501(c)(3) tax-exempt status.

To apply for your exemption, you must complete IRS Form 8718, User Fee for Exempt Organization Determination Letter Request, and IRS Package 1023, Application for Recognition of Exemption. For instructions on filling out these forms, read IRS Publication 557, Tax-Exempt Status for Your Organization. (You can obtain all of these items for free by calling 800-TAX-FORM, or you can download them from the IRS website.) If you need a bit of help deciphering the IRS-speak, consider downloading Nolo.com’s plain-English eGuide, Nonprofit Corporations: Qualify for Federal Income Tax Exemption.

After the IRS reviews your application, it will send you a letter indicating that it has approved your nonprofit status, or it might ask you for more information about your organization. The IRS can also deny your application outright. If this happens, see a lawyer who specializes in nonprofits.

Apply for a state tax exemption (if necessary)

In a few states (California, Montana, North Carolina and Pennsylvania), you must complete a separate application to get a state tax exemption. In other states, as long as you file nonprofit articles of incorporation and obtain your federal 501(c)(3) tax-exempt status, your state tax exemption will be automatically granted. In still others, to get your state exemption you must send in a copy of the IRS determination letter that granted your federal exemption. Contact your state tax agency to find out what steps you must take.

Draft corporate bylaws

Next you must create bylaws, the internal rules that govern your nonprofit corporation. Bylaws contain rules and procedures for holding meetings, voting on issues and electing directors and officers. To create bylaws, you can either follow the instructions in a self-help resource or hire a lawyer in your state to draft them for you. Typically, the bylaws are adopted by the corporation’s directors at their first board meeting.

Appoint directors

Directors, who meet and make decisions collectively as the board of directors, have the authority (and responsibility) to manage and run the nonprofit corporation. Many states allow nonprofits to have just one director, but other states require at least three.

The directors should first adopt the bylaws and elect officers — state law usually requires a president, secretary and treasurer, and sometimes a vice president as well. Then, the directors should authorize the newly elected officers to take actions necessary to start the business of the nonprofit — for example, setting up bank accounts and admitting members.

After the meeting is completed, minutes of the meeting should be created and filed in your corporate records book. For more information, see Running your nonprofit corporation.

Obtain licenses and permits

Many businesses, whether operating as for-profit or nonprofit corporations, partnerships or sole proprietorships, are required to obtain state or local licenses and permits before commencing business. So, while you may not be subject to the kind of red tape that entangles profit-making enterprises, you should check with your state department of consumer affairs (or similar state licensing agency) for information concerning state licensing requirements for your type of organization. For instance, a local business license (sometimes called your “tax registration certificate”) may be required for your activities, and if you sell anything to consumers, you’ll need a sales tax permit.