Is a Nonprofit the Right Choice?
When might I want to form a nonprofit?
Before you incur the expense of forming a nonprofit, it is important to review what a nonprofit entity is, what is isn’t, and whether it is the appropriate structure for your vision.
First, what is a nonprofit entity (or nonprofit organization, as some people say)? A nonprofit entity serves a public purpose rather than benefiting a particular person or entity. This means the nonprofit entity benefits a defined class of persons, animals, plants, or things (for example, art or architecture). Nonprofits use their assets to further these public purposes, such as through providing charitable services, grant making, or donations. They are not permitted to distribute their assets to “investors” or “owners”, but may pay reasonable compensation for services. Nonprofits are generally governed by a board of directors or board of trustees. While this is similar to for-profit business, nonprofit goverance board face stricter limits on their governance, decisions, and powers.
Consider these five things before forming a nonprofit:
Now that we established what a nonprofit entity is, the next consideration is whether one is appropriate for your vision. Nonprofits are like babies. They sound like they are easy to make and manage but the truth is it is much more difficult than it appears. So, consider these five things before forming a nonprofit.
The nonprofit is a legally distinct entity from its founder(s). The founding members must be prepared to relinquish 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.
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?
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?
The important thing is candidly ask whether you support the nonprofit cause or whether 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 the nonprofit is supporting your personal needs rather than the community, maybe it is better to form a for-profit business or consider an informal media-based promotion, such as a blog, webpage, or crowdfunding.
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?
What is the intended duration of the nonprofit? 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?