The Benefits of a Non-Profit Organization
Contrary to popular opinion, nonprofit businesses and organizations are everywhere we look. While some are obvious, such as homeless shelters or social service agencies, others can look exactly like for-profit businesses, and may even fulfill some of the same needs and perform the same services as for-profit businesses.
This is why when forming a business, you may have the option whether to incorporate as one or the other. In fact, almost any business can be adjusted to have a purpose that fits nonprofit status.
For example, a furniture business is normally for-profit, but if they provide furniture at low cost to those in low-income housing, that same business can have a mission that fits nonprofit status.
What are the benefits of starting a business as a nonprofit? Before answering that question, some misconceptions about nonprofit organizations should be addressed.
Nonprofit businesses can legally make a profit, but that profit can’t directly benefit an individual. For example, in a for-profit business, shareholders or owners may make more through salary, distributions or values of stock if the business makes more profit.
However, that isn’t the case with nonprofits. The money made by nonprofits must be put back into the organization and used for operating expenses, reserves, etc. Employees can still be paid significant sums of money; CEOs (executive directors) of some major nonprofit organizations make very good salaries. The salary just can’t be dependent on the profits of the business.
Nonprofits can make, spend and save a lot of money. Many nonprofits have millions in the bank, and multi-million dollar operating budgets. Think of non-profit hospitals, with their budgets, and salaries, as an example.
Benefits and Drawbacks of Nonprofits
Nonprofits have other benefits, specifically the ability for certain nonprofits to avoid paying income or sales taxes (although that isn’t the case for smaller groups like clubs, sports leagues or other interest organizations that aren’t run like a business). Likewise, donations made to your organization will be tax deductible to those making them.
But nonprofits can have drawbacks. In Florida, a nonprofit must have a board of directors, which means that there will have to be more than just the director running the company. Additionally, there is more state oversight on expenditures that the company makes.
In a for-profit business, if you want your company to make your car payment, there may be no issue with that so long as it is properly documented and disclosed on tax forms.
But that freedom is not there with nonprofits. People who donate expect their money to go to the mission of the nonprofit. When you use nonprofit money to pick up a meal or make a car payment, you could be defrauding those who are donating. This isn’t to say that a nonprofit can’t pay for an officer’s expenses, so long as those expenses contribute to the organization’s stated missions.
Are you interested in starting a business? Make the right decisions from the start with attorneys that can help you form in ways that are most beneficial to you. Contact Tampa estate and business attorney David Toback to discuss a comprehensive business plan.