NONPROFIT
GOAL
RAISING MONEY FROM THE PUBLIC
MISSION
DECIDING IF THIS IS THE RIGHT WAY
NONPROFIT
Boon or Bane?
Definition
We ought to start with the commonly definition of nonprofit that Lions Clubs often identify themselves with. A nonprofit organization is formed by a group of people in order to pursue a common not-for-profit goal simply meaning that the any revenue including excess revenue generated will not be distributed to its members or leaders.
You may sell goods or services for money and pay reasonable and “reasonable” will be interpreted by the IRS, salaries to officers and employees, but you may not distribute any profits for the benefit of directors, officers or members such as dividends.
To qualify, you must be incorporated, your corporation must be formed to benefit: (1) the public, (2) a specific group of individuals, or (3) the membership of the non-profit. Examples of Nonprofits include: religious organizations, charitable organizations, political organizations, credit unions and membership clubs such as the Lions or a country club.
A organization that meets the requirements in the Internal Revenue Code may be recognized by the Internal Revenue Services as a nonprofit organization able to be designated some sort of tax-exempt status such as (501(c)(3), the charitable tax-exemption), there are more than 20 code sections for nonprofit qualifications, but not all nonprofits are eligible to be tax exempt.
Only qualified nonprofits can receive grants from other nonprofits and government agencies. Also, contributions to qualified nonprofits are deductible on the donor’s income tax returns.
Getting there
A club should consult with a tax attorney to determine what form of business structure is best for you,ie.trust, association of members, non-membership organization (board only).
Also, have your attorney determine and discuss clearly what the exposure of liability on each member of the club is and whether it is worth moving forward. Put in place all necessary stops and firewalls to lessen liability issues.
Several layers of necessary documents and actions must be completed such as formal filing of articles of incorporation. Applying for tax-exempt status and then may be, after review, receive an authorization letter granting such request.
Bare in mind, federal taxes such as employment taxes and income that is unrelated to your exempt status is subject to payment of federal taxes.
Also bear in mind, all tax-exempt organizations must file an annual financial report (IRS Form 990) at both the state and federal level and is public domain.
Be mindful the board of directors has ultimate control over the organization, but typically an executive director is hired. High level of scrutiny is applied by the federal and state government over the governing body.
Pits
Original founding fathers of the nonprofit are not willing to give up control over growth or direction.
With out strict control of all members of the organization, liabilities promised on the full faith and credit of the organization but not recorded anywhere constitute accounting fraud.
Lack of strict control over expense ratio on things other than its programs can take a organization down a slippery slope.
Getting employees to do the work in the organization is brutal and most organizations cannot compete with private industry and must rely on benefit packages, generous vacation allowances, flexible work hours, incentives and pleasant work environments.
Fundraising
Is one of the most important, and sometimes most difficult and time consuming activity. Here are the best ways to fundraise for your nonprofit organization.
- Grants in the form of cash to be used for a specific purpose.
- Individual and corporate donations.
- Fundraising events held once or twice a year, typically in the spring or fall.
- Selling products or services
- Volunteer and in-kind contributions
Options
Consult your attorney. If you are not going after federal government or private foundations for your source of fundraising, you probably be better off organizing as a Limited Liability company where your directors, trustees, members, and employees are not generally responsible for corporate debts and liabilities.
If you need to generate only a few thousands of dollars per year to operate your activity funding consider just filing and paying your fair share of federal and state taxes and skip all the expenses, protocol and paperwork of a nonprofit status.