Should your small business be structured as a non-profit?

By Mark G. Auerbach

 

You may choose to start your small business as a non-profit or not-for-profit business, depending upon its mission, purpose, and service. A non-profit or not-for-profit business (there are subtle differences, and the terms are used interchangeably) is structured differently than a for-profit business, and a good accountant and an attorney are necessary to set up a company in the not-for-profit arena. Your by-laws, mission statement, and other details are confirmed by the IRS, which gives the business that status. Depending on your business, you may or may not be tax-exempt.

 

Don’t assume that all non-profits are charities, because that’s not the case. Social organizations, clubs, arts and entertainment venues, public radio and TV stations, and other non-charities can be non-profit. A group of artists can organize a non-profit gallery, whose mission is to display works by local artists and offer art classes or lectures.. Animal shelters, community centers, alternative education programs, and a variety of groups can be organized as a non-profit.

 

The basic differences, other than bylaws, mission statement, and organizational structure, are these. A for-profit business can return its profits to its investors, board, or owners. A non-profit must return its profits to the organization. Its board is there to make sure the business is effective, and they receive no personal financial gain for ending a fiscal year in the black.

 

Once you’re a non-profit, you’re obligated to account for your income and expenses, file tax forms, show responsible and best practices in all business transactions, and put any profits back into serving the mission.

 

Your non-profit can operate differently in some areas.

 

1. You can apply for grants from foundations, businesses, and agencies to further your mission. 

 

2. You can solicit donations or contributions from your members or the general public to support your program and your mission, and these contributions may be tax-deductible for the donor to the extent provided by law. 

 

3. You can, if the IRS approves, be exempt from paying certain kinds of sales taxes for the purchase of products.

 

4. You can take advantage of special bulk mailing rates from the post office, advertising discounts from some media outlets, and other non-profit opportunities.

 

A non-profit business must be motivated to provide the best product or service it can, to at minimum break even or show a profit in its budget, and have the appropriate checks and balances in place to insure that your business or organization is being run as efficiently as possible. 

 

If you think non-profit is the way to go, there are several steps.

 

1. You’ll need to file articles of incorporation with the appropriate state agency.

2. You then apply for tax-exempt status with the Internal Revenue Service.

3. Then, you register with the state (s) where you plan to fundraise.

 

For further information, check the following resources.

 

The Society for Non-Profits  

The Foundation Center 

The US Small Business Administration 

Grantspace 

 

It is possible to start a non-profit on your own, but seeking an expert attorney or accountant with experience in small business practices and non-profits, is always your best bet in the long run. You’ll need that accountant to help you file the many tax forms required once you’re up and running.

 

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Mark G. Auerbach has worked with numerous non-profits. He is principal at Mark G. Auerbach Public Relations, a Springfield, MA, based marketing, public relations, development and events consultancy. You can find more information about Mark at Facebook and LinkedIn.

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