Should My CC Community be For-profit or Nonprofit?

I am a new director of a Classical Conversations (CC) campus in Michigan. I’m trying to weigh how to set things up. Can you offer me a recommendation on if I should set up a for profit or non- profit based on your knowledge of CC.

Also I’m at a loss of how to even approach or explain CC and the situation to a CPA who has no understanding of it. Where do I start and what are important things s/he needs to know to help me make a good decision?

– Michelle

Michelle,

Thank you for contacting me.

I’d venture to estimate that 90% of CC Communities are set up as for-profit businesses, sole proprietorships owned by the Director. A few larger ones with a mission focus have established boards, filed to become nonprofit corporations, and applied for 501(c)(3) tax exempt status with the IRS.

The main differences between a for-profit business and a nonprofit organization are:

  • Profit motive. Nonprofits have a purpose other than making a profit; in most homeschool groups the purpose is to educate children, which the IRS says can be a purpose for a 501(c)(3) tax exempt organization. By default, a for-profit business has making a profit as their motive, even if the activities are educational in nature.
  • Ownership and Control. A nonprofit is not owned by anyone; the board runs everything and decides what everyone, even you the Director, will get paid. The board can also fire you and hire another Director. The board can decide not to renew the license with CC and decide to use another curriculum. So you surrender ownership and control of the CC community to the board.
  • Tax exemption and tax deductible donations. Nonprofits who apply for 501(c)(3) tax exempt status with the IRS will be tax free on their surplus and can receive tax-deductible donations.
  • Volunteers: For profit businesses cannot use volunteers nor can they ask their paid workers to volunteer. That would be a violation of the Federal Fair Labor Standards Act, which protects the rights of workers from unscrupulous employers. This no-volunteer-labor law puts a real crimp in the way that most CC Directors run their communities! Being formed as a nonprofit organization means you can legally (and cheaply) use volunteers!
  • Use of property-tax-exempt facilities such as churches and libraries. Most churches and libraries limit the use of their buildings to nonporift organizations, so they can avoid paying property tax. For profit bushiness such as most CC Communities should notify their church host that they are not a nonprofit homeschool group, but are a business owned by the Director.

My webinar, Create a Nonprofit for Your Homeschool Community, will be a big help is understanding the differences and how a CC Director can convert her business to be a nonporift organization.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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