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America's First Choice for Nonprofit Startup and Compliance

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When Foundation Group launched in 1995, we were the first specialty firm in America dedicated exclusively to starting nonprofits and helping them to stay compliant with state and federal regulations.

20 years later, we're still going strong!  In fact, our client base continues to grow exponentially every year...and we've never been more committed to bringing our clients the expertise they need to see their vision come to pass.  Simply put, we love what we do and we're passionate about doing it with excellence!

We were the first...and we've never stopped leading!  Call us and see why we are America's first choice for nonprofit startup and compliance services.

Who Really Owns a Nonprofit?

Who Really Owns A Nonprofit?

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.

S-Corporation: A corporation may seek to obtain “S Corporation” status for federal income tax purposes.  The income of an S Corporation is taxed only once: at the employee or shareholder level.

Limited Liability Company: An LLC is a formal association which combines the advantage of a corporation’s limited liability and the flexibility and single taxation of a general partnership.  An LLC has members rather than shareholders.

With the exception of the LLC, the business entities listed above cannot be used for nonprofit organizations.  Even the use of an LLC is extremely rare; all nonprofit LLC members must be recognized 501(c)(3) organizations, not people or other entity types.  The most popular business entity for nonprofits is the nonprofit corporation.  This type of corporation is different from a typical for-profit corporation or S-Corporation.  Those have shareholders (owners).  A nonprofit corporation has no owners whatsoever, only stakeholders.  A stakeholder is not an owner, but rather someone who has a stake in the successful operation of the organization.  Stakeholders could be members of the nonprofit, or even beneficiaries of the nonprofit’s activities.  One thing stakeholders have in common:  they have no legal ability to profit personally…hence, nonprofit.  A nonprofit corporation is formed to carry out a public purpose, whether that be religious, educational, charitable, scientific or whatever.  It is prohibited from acting in a manner that results in private inurement (profit) to individuals (for more information about inurement, please refer to our post about “Avoiding Conflicts of Interest).

How can that be?  Someone has to own it, right?  No, not really.  The nonprofit organization is not “owned” by the person or persons that started it.  It is a public organization that belongs to the public at-large.  The parties responsible to operate the organization for the stakeholders are the members of the board of directors.

Also, a nonprofit corporation cannot be sold.  It is simply not possible.  If a nonprofit corporation were to “close down”, or dissolve, the board of directors of the nonprofit must distribute all of the nonprofit’s assets to another nonprofit corporation after all debts have been settled.

“No one…and everyone!”  Hopefully now, it is much clearer what we mean.

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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wayne
Guest

Greg, if a not for profit corporation bought penny stocks and made a profit, where should the money go when the corporation is dissolved? thanks

wes mane
Guest

Please disregard my question. I found that they cannot

Wes Mane
Guest

Can a partnership become a 501(c)(3) status?

Bruce Sartwell
Guest
Our community privately owned swimming pool was initially operated as a for-profit corporation. People wanting to join the pool would pay a one-time “membership fee” and would receive a certificate stating that they were a shareholder in the corporation which conveyed a share of ownership to the person joining. In addition, members would have to pay annual dues. A few years ago the corporation changed to a non-profit corporation and there was no longer a membership fee nor did new members receive a certificate but they still had to pay the annual dues. Because of that change, what happens to… Read more »
lois
Guest

In my opinion, i (being part of the board) would suggest that the president appoint a committee chairman to gather a committee to deal with the issue…

I also feel your By-Laws holds the answer, or should… if it doesnt, better speak to the by laws committee chair..

I have been the by laws committee chair for our non profit for over 10 yrs. a very important position to hold (in my opinion)

Randall
Guest

Does a Volunteer Fire Department with 501(c)(3) designation and getting a majority of funding through a local government entity meet the definition of “public charity”? Or is another term more appropriate? Some claim to be a “private” organization but that is an ambiguous term. Any thoughts on that?

J Hasten
Guest

I am wondering what the difference is between a foundation and a non-profit corporation. I want to file for a non-profit and I will be calling ya’ll for some help. I have some money that I would like to use to get started in a Ministry of Helps. I know this is probably a dumb question but I was just wondering the difference.
Thanks for your time.

Ellis Carter
Guest

Nice post. This is a poorly understood concept that really needs more attention. Thanks for highlighting it. Have also blogged about this topic at http://bit.ly/a377mo

John
Guest

I am a member of a board that runs a 501c3 housing project. It has been in existance for 35 years. The board wants to sell it. Where do the proceeds go? Can we take a consulting fee? We have never been compensated.

Linda L
Guest
My Dad and I have invested our lives savings and are working to start a non-profit Adult Daycare Facility. Dad owns the building and the land outright, and I was wondering if it would be smart to keep that in his name and have the business rent from him? That way, since we’re putting everything we have into this, he will still have something left. What are the pro’s and con’s about this, besides saving on property taxes? If we end up disolving some day and the building was part of the non-profit, would they also sell that and give… Read more »
Cheryl
Guest

So is it possible to start a non profit to help create jobs and do a service to the community.

Elder Max Simmons
Guest

{Organization Name Hidden} is a non profit 501(c)(3) Public Charity , we have two years of successful operation behind us. My question is when we apply for credit the grantors almost always look past the corporation entity legal status and requires personal liability from a officer of the Corporation. Is this legal in the state of Georgia?

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