Who owns a nonprofit?

Carol,

I have a couple of questions for you.

Ownership of the group: Do I structure this some way like 51% me, 49% between other directors. How to do this and make sure I’m the boss.

Christee

(whose homeschool group is applying for 501c3  tax exempt status with the IRS)

 

Christee,

No one “owns” a nonprofit. The board runs the organization, but a nonprofit does not split up the ownership to individuals/shareholders like a for-profit corporation. In order for you to be the boss, you must be appointed by the board as its president/executive director. The rules for electing the leadership are in the bylaws, including things like how leaders are elected and how long a leader can serve.

Here’s an explanation from The Foundation Group, a nonprofit consulting and advisory business.

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.

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.

Carol Topp, CPA

 

Financial Reports: What and how often?

Carol,
Thank you for your wonderful words of wisdom. 
I am looking for a simplified report to publish every month in our newsletter.
Would QuickBooks give a report that fit the needs of what is required for non-profit? 
It seemed like we were not able to do the Profit and Loss statement (P&L) unless we did the Balance Sheet.  Am I wrong in this thinking?
I read that these reports can be done monthly, quarterly or fiscal year end.  What is your opinion?

Fondly,
Hilary

Hilary,

A Profit and Loss statement (P&L) shows your income and  your expenses for a time period (usually a month). It would be a great report to share in your monthly newsletter.

The financial reports from Quickbook are typical of  business financial statements. What the IRS requires of nonprofit, tax exempt organizations is somewhat different, but not much.  I prepare the IRS annual information returns  (Form 990) for several nonprofits and the QuickBooks statements are where I start.

It seemed like we were not able to do the P&L unless we did the Balance Sheet.  Am I wrong in this thinking?

The Balance Sheet and P&L are linked. One affects the other. In QuickBooks, it’s easy to generate both these reports after you enter all the transactions.

I think monthly reports are appropriate.  Some organizations only do quarterly reports if they are small or not very active financially.  Annual reporting is not frequent enough for your board to monitor the finances properly.

I hope that helps,

Carol Topp, CPA

Can a board appoint members without a vote?

 

Vote Pictures, Images and Photos

Dear Carol,
I am co-directing an established homeschool group and we are in the process of writing by-laws. My question is:
  • Is it okay to not allow members to have a vote pertaining to the decisions of the homeschool board?
  • Can the by-laws be set up to allow suggestions and recommendations from the members at the approval of the board?
  • Also, is it legal to initially appoint a board without a vote and then fill vacancies at the discretion of the established board?
Our concern is to protect the vision of the homeschool group.
Your website has been a tremendous help to us as well as your article in The Old Schoolhouse magazine. Thank-you for your time and ministry to homeschooler’s.
Misty M

 

Misty,
You have asked several good questions. Your group is fortunate to have you as a co-director.

Yes, it is OK to not allow members to vote; I have been on several nonprofit boards that do not have members vote.

Yes, you can set up your bylaws to allow final approval of ideas to be a board responsibility. You may establish a practice of considering suggestions and recommendations; you may not need to formalize the practice in the bylaws.

Yes, you can appoint a board without a member vote. This is done quite frequently on nonprofit boards, especially fine arts boards (i.e., art museums, symphonies, ballets, etc). Many boards find their own members from interested members, volunteers or patrons.

As a guideline, your board should remember their fiduciary duty (duty of care and duty of loyalty) to manage the funds with the purpose/mission of the organization in mind and not for private gain or benefit.
The board’s job is

  • “to provide for fiscal accountability,
  • approve the budget, and
  • formulate policies”

(from “Major Duties of Board of Directors),”

In other words, think first of what is best for the organization.

I hope that helps!

Carol Topp, CPA

Questions on taxes, incorporation and leaving a group

I saw your website and had some general questions for you. Appreciate your ministry to homeschoolers.

1. – Why is the pooling of (already taxed) money from homeschool families and then using it for a rent, insurance and contractor teacher a taxable event in the first place?  Why is it consider “income” if it is just collecting of money to be directly paid out for expenses like rent?

2.  We are trying to decide whether to go with recording our homeschool coop fees/expenses on schedule C of one person or try to establish a unincorporated association. What would be the pros and cons of them?

3.  Lastly, if we set up a unincorporated association via the state under my name but I leave the homeschool coop, how does the state and IRS know that I am no longer part of this association though my SSN or name or address was a part of it when it was established?

Thank you and look forward to your advice.

Teri

 

Teri,
Good questions! I’ll do my best to understand what you are asking and answer them correctly.

1. When any organization collects money, it is considered a for-profit business. Tax is paid on the surplus (i.e. profit) of the business (not the income). No tax is paid if there is no surplus. Some organizations have a charitable, religious or educational purpose and are granted tax-exempt status by the IRS.

2. A Schedule C entity would be a taxable business entity owned, and therefore controlled, by one person. The owner will bear the sole responsibility for its success or failure and be responsibility for all risk, liabilities and taxes due.

An association is controlled by a group of people and could apply to be tax exempt. The decision rests on the atmosphere of the group; is it perceived to be a joint effort or owned by only a single person who provides services for a fee? It is usually easier to build a cooperative spirit and a base of volunteers with a nonprofit association. Volunteers are usually less willing to give their time freely to a for-profit venture.

3. If a leader or founder leaves an organization, they can notify the state. Every state has a different procedure for doing this. Usually corporations are required to provide the name of a registered agent (someone who knows how to contact the organization and agrees to receive court summons and official correspondence from the state). If the registered agent changes, a form is filed with the state supplying the new agent’s name and address.

In general, it is common practice for the founders (original incorporators) of a nonprofit corporation to change after several years. In my experience, most states do not keep track of new board members or leaders; they only desire the registered agent’s name be kept current. Some require annual reports and a listing of officers.

I think that answers all of your questions! I hope it helps your decision making!

 

Carol Topp, CPA

If we incorporate, will liability be removed?

I have been ask to join a homeschool group leadership team as secretary and they are in the process of incorporating the group.  My first question is after the group is incorporated will the liability be removed from the members of the leadership?

My second question is that the incorporation application only ask for the name and address of the president, vice president, secretary and treasurer.  There are a several more on the leadership are the four people that are listed on the application more liable than those who are not listed and also why does more than one person have to be listed on that application?

I want to thank you for your time and also all that you do for homeschoolers.  You are a great help!!!!!

Amy

 

Amy,
You asked, “after the group is incorporated will the liability be removed from the members of the leadership?”

Incorporation provides limited liabilityfor your board members. For the most part, liability is limited to the corporation, and any lawsuits will not affect the leaders personally. But be aware that anyone could still sue your officers in cases of neglect or fraud. Corporate status does not protect individuals in cases of fraud or gross negligence.

Your second question was, “are the four people that are listed on the application more liable than those who are not listed?”

No; any and all board members share responsibility and therefore share liability.Here’s a blog post on board members responsibilities: http://homeschoolcpa.com/what-are-the-legal-responsibilities-of-homeschool-leaders/

The form just asks for names of the officers (those positions listed) as they usually have the greater responsibility in running a nonprofit.

“Why does more than one person have to be listed on that application?”

In your state is is necessary for there to be more than one person to form a nonprofit corporation. I think that is a good idea.  For example, in PA a single individual can form a nonprofit, which I think is usually a bad idea.

Individuals can form businesses alone, but a nonprofit should be run by a team of people so no one claims the groups is “theirs” or tries to keep any excess money for themselves. I’ve seen both happen in homeschool groups founded and run by a single person and it is not good for the group.

I hope that helps!

Carol Topp, CPA

Insurance provider works with homeschool groups

Angela, a homeschool leaders in Arkansas, shared some helpful information about insurance for homeschool groups.

 

As our group grew and I began to understand the potential liability we, especially our leadership, was taking on and heard of more and more groups being sued, our board of directors decided it was imperative that we be insured.
Our search for insurance was very long, and discouraging.  We solicited quotes from companies and were completely turned down, or quoted prices that would have ruined our budget.   Then we found AIM!

Unfortunately, AIM Insurance no longer covers homeschool organizations.

 

Some homeschool leaders in Indiana and Ohio found that Mennonite Mutual Insurance is covering homeschool organizations.
 

And NCG Homeschool Solutions offers insurance to homeschool groups ad Classical Conversations Communities

 

Carol Topp, CPA

Advice for first year director

Advice for first year Executive Director from Jerry Sinclair, President of Faithful and True of Jacksonville, Inc.

1. Never stop prospecting for new donors or new volunteers

2. Keep an eye on the finances. I have a treasurer, but I am still responsible for the financial health of the charity.

3. Communicate, communicate, communicate Keep your board informed.

4. Inspect what you expect. If you ask anyone (paid staff or volunteer) to do a task, quietly check to make sure it is done properly.

5. While staying humble, be confident when doing the right thing. Your integrity will be tested more often than in the for-profit world.

6. Don’t be afraid or ashamed to ask for help. It is far worse to tackle a problem the wrong way in ignorance. Better to admit up front if you are in need of help.

7. Keep the charity mission statement at the forefront of everything you do. Make it a habit to review all of your tasks and directives to make sure they are within the mission statement guidelines.

8. Be prepared to say NO early and often. You and your charity may be asked to do some good things, but it may be outside the DNA of your charity’s ability or staffing resource.

9. Make staff and board meetings timely, efficient and as short as possible.

10. Have FUN!

So many of these suggestions apply to homeschool leaders too!

Seven Sins (and more) of Board Members

BoardRoom2

I found this list of Seven Deadly Sins of Board Members over at the Drive by Consulting blog. Many homeschool organizations have great boards filled with generous, helpful members. But sometimes we can fall into bad habits.

Give this list to your board members as you launch a new year as a gentle reminder that the mission of your group should be first in their minds.

Seven Deadly Sins of Board Members

  1. Gossip
  2. Breach of confidentiality
  3. Lone Ranger trusteeship (a leader thinking he/she can do it alone)
  4. Micro-management
  5. Unwillingness to ask hard questions and make difficult decisions
  6. Representation of special interests
  7. Self-dealing

Seven More Dangerous Sins of Board Members

  1. Pontification (arrogance)
  2. Always seeking the dark side
  3. Irregular attendance
  4. Thinking they run the organization
  5. Neglecting to support the CEO (or director)
  6. Focus on the present rather than the future
  7. Failing to listen

Any of these true of your board?

Carol

Practical helps for leaders from HSLDA

Homeschool Legal Defense Association (HSLDA) has a new spot on their website for homeschool leaders.

HSLDAGroupServices

Check out the entire site, but I found the Practical Helps page useful.

http://www.hslda.org/GroupServices/Leaders.aspx/PracticalHelps

There I found articles on

  • conflict
  • common co-op problems
  • how to welcome families of handicapped students
  • tips on activities for groups
  • field trip guidelines

and a linkHomeschoolCo-ops to my book  Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out


Vicki Bentley, the HSLDA Group Services Director, explains the site is still under construction and plans to add many more articles.

Thanks to HSLDA for creating a site to help homeschool leaders.

Carol Topp, CPA

HomeschoolCPA ebooks mentioned by HSLDA

I am pleased to announce that Homeschool Legal Defense Association (HSLDA) has mentioned several of my ebooks and articles on their Group Services webpage.

HSLDAGroupServices

While homeschool groups are not HSLDA members, HSLDA does offer their group services staff, with more than twenty years experience in local and/or state support group leadership, to assist groups by providing examples of how other leaders have handled similar circumstances.

http://www.hslda.org/GroupServices/Leaders.aspx/Legal

On the Leader Support tab you’ll see Legal and Finaincial Resources and my ebooks are articles are metioned there including:

Money Management for Homeschool Organizations by Carol Topp, CPA. (e-book)

How Do We Become a Recognized Nonprofit?” by Carol Topp, CPA

Do We Need to Incorporate?” by Carol Topp, CPA

Q&A for Homeschool Leaders (e-book) by Carol Topp, CPA—The most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance.


Thanks HSLDA in helping to assist homeschool leaders!

Carol Topp, CPA