Many people dream of improving the community, igniting change, or protecting a cherished cause. Nonprofit organizations are a useful legal structure to power these dreams. However, before diving in, consider these 5 questions to ask before starting a nonprofit.
First, what is a nonprofit?
Before you spend money forming a nonprofit, you should first know the basic legal essentials of nonprofit law.
A nonprofit serves a public purpose. It does not exist to benefit a specific person or entity. Nonprofits can benefit a defined class of persons, animals, plants, or things (for example, art or architecture).
Nonprofits use their assets to further these public purposes. Examples include providing charitable services, making grants, educating the public, and promoting culture. They cannot distribute its assets to “investors” or “owners.” However, they can pay reasonable compensation to their employees.
Nonprofits are generally controlled or managed by a board of directors (or board of trustees). While this is similar to for-profit business, nonprofits face significant legal limitations on their governance, decisions, and powers.
Here are the 5 questions to ask before starting a nonprofit:
Now that we know the basics about what a nonprofit is, you must determine whether you should create one.
Nonprofits are like babies. They are easy to make but can be difficult to manage. So, before getting too excited about your charitable mission, ask these 5 questions before starting a nonprofit.
#1: Group Governance
Contrary to popular opinion, nonprofits do not have owners. The founder and board of directors do not own the nonprofit.
The nonprofit is a legally independent business entity. If you start a nonprofit, you must be prepared to give up sole control of the entity and allow a board of directors to determine the mission and management of the entity.
After devoting substantial time, passion, and money to a fledgling nonprofit venture, it can be very difficult for the founder(s) to step back and allow others to participate.
So, are you prepared to step back and allow others to make important business decisions, even if you disagree with those decisions or if the board takes the nonprofit in another direction?
#2: Duplication of effort.
Another important consideration is whether to form a new nonprofit entity or to join with an existing local or national organization.
Sometimes it is more advantageous to join an existing organization rather than form a new organization. You can obtain greater access to funding, employees, volunteers, an existing donor base, and work an with established, recognized entity rather than starting from scratch. Multiple organizations with similar missions end up competing with each other for funding, projects, and volunteers.
On the other hand, if you believe your vision can find its own niche audience, a nonprofit entity may be the right choice.
Are you duplicating effort? Is there existing partner you can join, support, or volunteer for?
Be honest. Do you support the nonprofit cause or does the nonprofit supports you?
Too often, people form nonprofits to meet personal, emotional, financial, or reputational needs rather than for supporting the needs of the community.
If you want to start a nonprofit to support personal needs rather than the community, maybe it is better to form a for-profit business. You can also an informal media-based promotion, such as a blog, webpage, or crowdfunding.
Ask yourself: what is your motive?
Do you have the resources – financial, leadership, volunteer, etc. – to maintain the nonprofit organization? In other words, how viable is your idea?
There are many wonderful ideas but too many fail because they lack a critical volume of consumers/supporters, they cannot obtain sufficient financial support, or they compete against too many similar, already established groups.
Do you homework. What resources will you need and can you get them?
#5: Foreseeable lifespan
How long do you think this nonprofit can or will last?
Is this a temporary organization to raise funds for a specific project or is the mission intended to exist for many years?
For example, if you are raising funds for a single, short-term project, there are other structures, and even crowdfunding opportunities, that may be more advantageous.
Conversely, if you believe your mission will continue for years or decades into the future, a nonprofit might be the best choice.
Is your cause a long-term effort or a short-term need?
Call us before starting a nonprofit.
Nonprofits are a labor of love and can be very fulling personally while benefitting the community. On the other hand, they are a lot of work. You need time, resources, volunteers, donations, and community support.
Concerto Law enjoys counseling people who are thinking about starting a nonprofit. We strategize and decide whether a nonprofit is a good choice for you and your community. Sometimes it is. Sometimes it isn’t. The point is, we are honest with you and if a nonprofit is not a great idea, we’ll come up with other strategies to fulfill your charitable mission.
Schedule a consult with Concerto Law to discuss whether the time is right for you to start a nonprofit.