Posts Tagged ‘legal’

The concept of who owns a nonprofit organization can be hard for some to grasp, especially given that the answer is, “No one…and everyone!”  We encounter this confusion with new clients on a fairly regular basis.  And, given people’s understanding of how basic business operates, it is understandable.  In order to fully appreciate the concept of “non-ownership”, it is helpful to first talk about the various types of business entities.  Then, we’ll look at organizational purpose.  By the end of the article, it should make a lot more sense.

There are several different types of business entities.  For-profit companies make up most of them.  Here are a few (there are others)…all of these have an owner or owners:

Sole Proprietorship: One person who conducts business for profit.  The sole owner assumes complete responsibility for all liabilities and debts of the business.

General Partnership: Two or more individuals as co-owners of a for-profit business.

Corporation (for-profit): The corporation itself assumes all liabilities and debts of the Corporation.  A corporation is owned by shareholders.  A shareholder enjoys protection from the corporation’s debts and liabilities.

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It often seems that when otherwise business-savvy individuals become involved in a nonprofit organization, they set aside all they ever learned in business and proceed to operate their nonprofit as if business rules do not matter.  As most soon find out, they matter a lot.  In this post, let’s take a look (in no particular order) at 10 business basics that nonprofits ignore at their own peril.

Money. This may come as a shock to some, but being “nonprofit” does not, cannot, mean NO profit.  With the notable exception of GM, AIG and a few others, a business must make a profit to survive.  Your organization is probably not on Geitner’s list for TARP funding, so red ink should be regarded as impending doom.  With the uncertainty of this economy, you simply must be solvent.  You and your board may have to make some tough decisions.  Some programs may have to be scaled back or eliminated.  Fundraising must become even more focused and intentional.  I won’t repeat a lot of what we’ve discussed recently concerning funding…suffice it to say you must keep a lid on overhead…now more than ever.

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