Non-Profits

To fully explain to you what a non-profit organization is, I feel that I must first explain to you what a profit organization is. A profit-organization exists primarily to generate more money than it spends. Profit organizations are required to pay taxes on all the profits they make. The owners can then decide whether they want to keep all the profit they make or spend more on the company. The shareholders can also decide to share some of it with employees through the use of various types of compensation plans, like employee profit sharing. A non-profit organization is an organization that provides a particular service to the community. The word non-profit refers to a type of business; these types of businesses are governed by rules that do not allow distribution of profit to any of the owners. Most nonprofits businesses are organized into corporations. Most corporations are formed under the corporations’ laws of a particular state. Every state has provisions for forming nonprofit corporations; some permit other forms, such as unincorporated associations, trusts, etc., which may operate as nonprofit businesses on slightly different terms. Unlike profit organizations, non-profit organizations are exempt from corporate income taxes. Section 501 of the Internal Revenue Code lists several circumstances under which corporations are exempt from these taxes. Section 501(c)(3) describes corporations serving charitable, religious, scientific or educational purposes serves no part of the income of which "inures to the benefit of" anyone. Tax-exempt nonprofit corporations can, and do, operate in all other aspects of business like any other corporation. They have bank accounts; own productive assets of all kinds; receive income from sales and other forms of activity; including donations and grants if they are successful at finding that sort of support; make and hold passive investments; employ staff; and enter into contracts of all sorts. There are some specialized tax rules and accounting practices that apply to nonprofit corporations. If they are of a certain size, they are required to disclose many details of their operations to the general public and to state regulators and watchdog agencies using IRS form 990. This form shows any salaries paid to officers or directors and to the five highest-paid employees and contracts if any receive over $50,000 in the tax year (at the time of this writing in 1998). The form also requires the organization to divide its expenses into "functional categories" -- program, administration and fund-raising -- and report the totals for each along with the amounts expended on each program activity. There are many ways to start a non-profit organization. Experts say the best way to really clarify to yourself and what you intend to accomplish is by starting a new non-profit organization is to write a basic mission statement for your organization. You will need this mission statement if you plan to incorporate your non-profit organization. The mission statement describes the overall purpose of your organization. It addresses the question “Why does the organization exist'” The statement can be anything from a few sentences to a few pages, although it is recommended that those who are just starting to develop their organizations should keep a statement at a half a page. When writing a mission statement, it is best to include primary benefits and services to clients, groups of clients who will benefit from those services, values that will guide how your non-profit organization will operate, and how you'd like others to view your nonprofit organization. The mission statement is crucial to the development of any non-profit organization. There are many ways to start a non-profit organization; you can be a nonprofit organization just by getting together with some friends to form a self-help group. In this case, you’re an informal non-profit organization. You can incorporate your nonprofit so it exists as a separate legal organization in order to own its own property and its own bank account; ensure that the nonprofit can continue on its own; and protect yourself personally from liability from operations of the non-profit organization. You incorporate your non-profit organization by filing articles of incorporation, or other charter documents, with the appropriate local state office. (An incorporated nonprofit requires a board of directors.) In Canada, you can file for incorporation at the provincial or Federal levels. If you want your non-profit organization to be exempt from federal taxes you should file with the IRS to be a "tax-exempt" organization. The IRS states that you must be a corporation, community chest, fund, or foundation to receive tax-exempt status. Articles of association may also be used in place of incorporation. Being tax-exempt is not the same as being tax-deductible. In Canada, you can file for tax-exemption at the provincial and Federal levels. Depending on the nature of your organization, you may also grant tax-deductible status from the IRS. Publication 526 lists the types of organizations to which donations are deductible. In Canada, the Canada Customs and Revenue Agency (CCRA) grants charitable status, and you must be incorporated to achieve charitable status. So, for example, you could start a nonprofit that is incorporated, tax-exempt and eligible to receive tax deductible donations. The particular steps you take when starting your nonprofit depend on your plans for your organization, including the nature of its services. They also depend on how the IRS interprets the nature of your organization, including its services. Again, in Canada, you can file for incorporation and tax-exempt status at the provincial or Federal levels. Another way to start up a non-profit organization is to find and work with another non-profit organization that will act as your fiscal sponsor. A fiscal sponsor might be useful to you if your non-profit organization does not have sufficient sources to handle startup costs and fees; do not have adequate skills to manage your finance; or only temporarily address a community need and then no longer need to exist. You can do much of the work yourself to get incorporated and/or tax-exemption and/or tax-deductibility, but you should have some basic guidance and advice from a lawyer who understands non-profit organizational matters. In addition, there are various reports and filings you may have to submit. A nonprofit-knowledgeable lawyer can help you a great deal. Ask other non-profit organizations for references to good lawyers. You can also call the local bar association or a local funder. There are seven key roles in the development and up-keeping of a non-profit organization. There are clients, the board, the board chair, the committees, the executive director, the staff, and the volunteers. Everything in a nonprofit is ultimately directed to serving clients. Clients are the "consumers" or "customers" of the non-profit organization's services. A board chair's role is central to coordinating the work of the board, executive director and committees. The chair's role may have appointive power for committees, depending on what is specified about this role in the bylaws. The power of the board chair is usually through persuasion and general leadership. The board is comprised of individuals from the community and, ideally, is representative of the organization’s clients. Law and theory dictate that the board is in charge, and directly accountable for the overall direction and policies of the organization. Powers are given to the board by the Articles of Incorporation. The board can configure the nonprofit in whatever structure it prefers to meet the organization's mission and usually does so via specifications in bylaws. Members of non-profit organization boards are generally motivated by a desire to serve the community and the personal satisfaction of volunteering. Non-profit organization board members may not receive monetary compensation for serving on the board. A board chair's role is central to coordinating the work of the board, executive director and committees. The chair's role may have appointive power for committees, depending on what is specified about this role in the bylaws. The power of the board chair is usually through persuasion and general leadership. Typically, the board chooses to carry out its operations using a variety of board committees. They establish committees when it's apparent that issues are too complex or numerous to be handled by the entire board. Committees recommend policy for approval by the entire board. Committees make full use of board members' expertise, time and commitment, and ensure diversity of opinions on the board. Committees may meet monthly, every two months, or every three months; if meetings are not held monthly, attempt to have committees meet during the months between full board meetings. The board typically chooses to have this one person who is ultimately responsible to carry out the wishes of the board. The executive director is directly accountable for the work of the staff and supports the work of the board committees. Staff report to the executive director and may support the work of the committees. Finally, volunteers are unpaid personnel who assist staff, serve on committees and generally work under the direction of the executive director. Typically, non-profit organizations work from their overall mission, or purpose, to identify a few basic service goals which must be reached to accomplish their mission. Resources are organized into programs to reach each goal. It often helps to think of programs in terms of inputs, process, outputs and outcomes. Inputs are the various resources needed to run the program, e.g., money, facilities, clients, program staff, etc. The process is how the program is carried out, e.g., clients are counseled, children are cared for, art is created, association members are supported, etc. The outputs are the units of service, e.g., number of clients counseled; children cared for, artistic pieces produced, or members in the association. Outcomes are the impacts on the clients receiving services, e.g., increased mental health, safe and secure development, richer artistic appreciation and perspectives in life, increased effectiveness among members, etc. The governance function of a nonprofit is responsible to provide overall strategic direction, guidance and controls. The term "governance" refers to board matters. However, many people are coming to consider governance as a function carried out by the board and top management. Effective of governance depends to a great extent on the working relationship between board and top management. Central administration is the staff and facilities that are common to running all programs. This usually includes at least the executive director and office personnel. Non-profit organizations usually strive to keep costs of central administration low in proportion to costs to run programs. From what I have inquired from this paper, it takes a lot of resources and connections to initiate and operate a fully successful non-profit organization. Without some key elements like a good lawyer, a board, committee, volunteers, and many other branches; a non-profit organization is doomed to fail. You have to be willing to put a lot of hard work and determination into creating a fully functional non-profit organization. Bibliography Generating and Sustaining Non-profit Earned Income By Sharon M. Auster en.wikipedia.org/wiki/Non-profit_organization www.law.cornell.edu/topics/nonprofits.html www.managementhelp.org/org