How Do We Become A CDC?

A CDC is legally the same as any other non-profit entity organized under section 501 (c) (3) of the Internal Revenue Code. Local residents that are interested in forming a CDC should get together and develop a set of by-laws, file for incorporation with their state or local government and once that is completed apply to the federal Internal Revenue Service (IRS) for designation as a tax exempt non -profit organization. The IRS designation is necessary in order for your organization t o obtain grants and gifts from any government, corporate, or foundation sources or from individuals. The following sections will provide you with more detail about the basic yet critical steps to form your CDC. Getting Started Before you can start working on any of the pivotal points involved in community economic development, you need to understand the foundation for such efforts your organization. The first tasks you must undertake to start a community economic development organization are to: Establish your board of directors through your community meeting Start keeping board minutes Incorporate Get insurance Obtain your tax-exempt status Obtain an EIN number Register with the Secretary of State Use a fiscal agent Set up payroll and tax filings Set up bank accounts Set up annual audits and bookkeeping I. Establish Your Board of Directors When selecting board members it is important to identify individuals who have strong credibility with a diverse group of community stakeholders. It is also im portant that these individuals have a unity of purpose for the advancement of your community. Once these individuals are identified, you may wish to strengthen support and commitment from residents in the identified and surrounding geographic areas. This board will evolve over time. In fact, it can serve just as an incorporating body for a few months until you hold your first annual meeting and select a full board of directors. It may be important at this phase to identify those who are linked to the service sectors that are important to the future of your work. These individuals can include small business owners, locally elected officials, community-based leadership, and faith-based institutions. You may also wish to consider individuals who have experience in workforce development those creating jobs, looking for jobs, and helping people get jobs. A. Keep Board Minutes The records of every formal board meeting or minutes are an important operational and management tool. The minutes should include a list of all persons present and note every formal action taken by the board (motions, seconds, and votes). The minutes should be circulated to all Purposed Vision Consulting, LLC 1|Page

board members within one or two weeks after your meeting. Each board meeting generally begins with a review of the minutes of the previous meeting, followed by questions and discussions or corrections and a vote to accept the minutes and include it as a record of your proceedings. Board minutes become an important corporate document and must be kept in a special p lace. The planning of all of the aspects to successfully organize, manage and operate a CDC to enhance your community is very important to achieving the goals and objectives the community and its residents will agree upon in the future. Your CDC will need a solid management information system to track outcomes, performances and projects; strong financial data systems to provide monthly operating reports on activities undertaken on behalf of the organization; consolidated financial statements; yearly audits and payroll data; and reports on the projects that receives financial investment from your funders and stakeholders. In addition, it is recommended that careful consideration should be given to the organizations technology infrastructure and that trainin g and professional development be completed for staff on a regularly-scheduled basis. II. Incorporate The basic documents involved in incorporating a CDC are bylaws and articles of incorporation. Bylaws set out the geographic boundaries in which you will work, the types of people who can be members, the size of the board, the frequency of board meetings, how board members are chosen, and other details about the board, its committees, and its officers. Articles of incorporation include your general purpose (mission) your convening board of directors, your legal address, and other government -related accountability details. III. Get Good Insurance Incorporation may protect board and staff members from personal liability. However, when there is no absolute protection from personal liability. It is critical, therefore, that the organization maintains director and officer liability insurance (D and O), which protects the members of the board, individually, from legal issues and concerns. IV. Obtain Your Tax-Exempt Status In order to raise charitable funds from foundations, corporations, and individuals, most organizations devoted to community economic development are set up as nonprofit corporations under Section 501(c)(3) of the IRS Code. This classification permits all donors to your organization to take a tax deduction for their contributions. In addition, you will need to obtain a federal tax identification (or EIN) number and register with the Secretary of State. V. Use A Fiscal Agent While waiting for your tax-exempt ruling you might decide to raise funds for your CDC. If so, you may need to ask another local nonprofit organization to serve as your fiscal agent. Essentially, you use this organizations tax-exempt status until you receive your tax-exempt certification letter from the IRS. The relationship should be established through a written Fiscal -Agent Agreement and approved by the board of directors of both organizations. Any grants that you are awarded or contributions received are then placed into your fiscal agents bank accounts and onto its balance sheet Purposed Vision Consulting, LLC 2|Page

as restricted fiduciary funds. However, it is important to establish a separate account for your funds not only with the bank account, but also on the organizations Chart of Accounts. Your fiscal agent then disburses the funds to your group pursuant to your written request. Note: It is common for the fiscal agent to charge a fee between 4 percent and 10 percent of your funds for this service. VI. Set Up Payroll And Tax Filings If you have paid staff, then handling the payroll properly is necessary. This includes taking out all the mandated and optional withholdings: federal income taxes, state income taxes, unemployment taxes, health insurance, retirement funds, and any other obligations and benefits agreed up on by your organization and its staff. VII. Set Up Bank Accounts Set up your checking and savings account at a convenient local bank, ideally one that will be involved in your efforts. The bank will ask you to name the authorized signers for these accounts. C hoosing authorized signers is a decision for your board, and one to be recorded in your board minutes. VIII. Set Up Annual Audits And Bookkeeping System Once your organization has been in business for a year, most funders will require an independent annual audit of your finances. Therefore, you should plan to put the cost of this audit in your second -year budget. Note: It is a good idea to hire your auditing firm right away.

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