How to Start a Nonprofit Charity

Nonprofit status also opened many doors in the highly competitive world of bottled-water retailing. When May landed Safeway as her first big account, the grocery chain waived the promotional fees Athena would otherwise have paid for shelf space. Other chains followed suit. "Companies want to partner with you because they want to do the right thing," she says. "They also appreciate the business value of aligning with a cause."

Operating in the nude: Another difference between for-profits and nonprofits is that nonprofits' tax forms are public records. Small, privately held businesses can keep operating details secret, but anyone can read a nonprofit's tax form, known as Form 990, online, learning salaries, revenue, expenditures and more. "Get prepared to get naked because of those 990s," says Mark Grimes, a nonprofits consultant in Portland, Ore. "You better be real comfortable with people knowing how much you make."

Getting paid: Salaries in the nonprofit sector vary widely. But with many nonprofit heads overseeing large and complex organizations, salaries can be quite substantial. A 2005 Chronicle of Philanthropy study of more than 200 large nonprofit groups found the median salary for nonprofit CEOs was nearly $320,000.

At nonprofit start-ups, salaries tend to be lower. Because of her dedication to the cause, May chose not to take a salary. Rohr takes a salary she says is "one-fourth of what I used to make."

SEED founders Adler and Vinnakota worked for free for the first 18 months, living off savings while they got their school off the ground, but they eventually drew salaries that started around $45,000 and rose each year. Recently, the SEED board upped their salaries to $150,000 apiece to reflect their blistering workloads and the growing size of the organization.

Soul satisfied: At the end of the day, nonprofit entrepreneurs say they're hooked on the satisfaction that comes from knowing their efforts improve the world. "I loved my [previous] job," says May. "But here, I'm helping affect lives, and [hoping] to save lives, ultimately. It's just so rewarding."

Paperwork ABCs

Ensure your organization is recognized as a nonprofit by the IRS and conforms to state laws with help from Anthony Mancuso, attorney and author of How to Form a Nonprofit Corporation.

1. Register with the state. Nonprofits must register with their state to legally do business as a nonprofit corporation. You'll need to create articles of incorporation -- states usually offer examples to work from -- and file them with your registration. See your secretary of state or department of licensing office for forms.

2. Apply to the IRS for nonprofit status. This is crucial because without the IRS' nod, donors won't be able to use their contributions as a tax deduction. Most nonprofits seek what's known as 501(c) 3 status, which allows tax write-offs for donors. Over its initial five-year operating period, a charity must demonstrate to the IRS that it has broad-based public support.