What does it take to be a nonprofit?

For years, I have heard homeschool groups leaders say things like this:

“We’re not an official nonprofit.”

“We’re not a recognized nonprofit?”

“We’re not a registered nonprofit”

Or sometimes, the leaders say this:

“We’re a nonprofit but we don’t have bylaws.”

“We’re a nonprofit, but we don’t have a board.”

So this blog post will explain what it takes to become a nonprofit organization!

Three things you need to be a nonprofit:

1. Board: Chose a group of at least 3 unrelated people to lead the group so no one carries the burden of leading alone (and because it is required in most states).

2. Bylaws: Write up bylaws to structure your group. This is the basic formation document that establishes a nonprofit, its purpose and basics of how it is structured.

Sample bylaws here

3. A purpose or mission other than to make money! For homeschool groups their purpose is education, usually the education of children, but it can be education of parents as well.

But we’re not an “official” nonprofit

So what do homeschool group leaders mean when they say their group is not “official” or “registered”?

They probably mean that they have not formed a nonprofit corporation in their state (which is done by filing Articles of Nonprofit Incorporation) in their state.

Advantages of Nonprofit Incorporation

But these “unofficial” groups may not realize it, but they have probably formed a unincorporated nonprofit association when tho or more people gathered for a common purpose or cause. Unincorporated nonprofit association the default when two or more people unite for a common purpose to benefit the public in some way.

They ARE a nonprofit, just an unincorporated nonprofit! 🙂

People form nonprofit unincorporated associations all the time; often without being aware of it. For example, if you and several of your neighbors get together to help raise funds to keep your local library branch open, you’ve formed an unincorporated nonprofit association.

Stephen Fishman, J.D., https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

So dear homeschool leader, if your group is two or more people united for a common purpose to benefit the public, call yourself what you are: an Unincorporated nonprofit association!

If you lack bylaws

Well, your group may not need bylaws if it is just a gathering of friends like a playgroup or a group that informally meets for park days or field trips.

But if your group has a bank account, charges fees, needs insurance, rents space, and has some sort of leadership, then you should create bylaws.

Most state laws for nonprofits require some sort of “formation document” and bylaws can be that formation document. Other formation documents are Articles of Incorporation for nonprofit corporations or Articles of Association for unincorporated nonprofits.

I offer sample bylaws to get you started

If you lack a board

Every group (except the informal gathering of friends, playgroup or park group) needs to have leaders-at least 3 is recommended by most nonprofit experts. A nonprofit should not (and legally CANNOT) be operated by one person.

So gather two other people who show an interest in your group’s activities and purpose. Ask them to help you lead. It will more firmly establish that you are a nonprofit and lessen the burden on you.

If you lack a board or leaders, then this homeschool group you’ve been running could be seen by the law as your business-which means you were supposed to be reporting the income and expenses to the IRS! And it also means that you are 100% responsible for any bad thing that happens when your group gathers! That’s pretty risky!

The biggest drawback to the unincorporated nonprofit association, and the reason nonprofits often abandon this form in favor of a nonprofit corporation, is that it has no separate legal existence apart from its members. Because it is not respected as a separate legal entity, its members generally can be personally liable for its debts and liabilities.

Stephen Fishman, J.D., https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

Get your act together

So it’s not that hard to establish an unincorporated nonprofit association. You may have done it without realizing it!

  1. Assemble a board of at least 3 people to help lead
  2. Create bylaws
  3. Clarify your purpose and include it in your bylaws

Helpful Resources for the next step

Your group may need to move beyond the unincorporated nonprofit association to be an “official” nonprofit (meaning a nonprofit corporation) if your group collects money, needs insurance, or involves more risk, especially if your group involves children who are risk-magnets!

These resources will help you grow beyond the informal gathering of friends to official nonprofit status:

Board Training video set: Training in the roles and duties of board members and how to run a board meeting

Board Member Manual: a template for board member binders to keep important information

IRS and Your Homeschool Organization: 501c3 Tax exempt Status book that explains nonprofit incorporation and applying for 501c3 status

Create a Nonprofit Webinar: 90 minute webinar that explains forming a board and a nonprofit corporation.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Board members and officers explained visually

Are you confused by the jargon used with nonprofits?

  • Board member
  • Officers
  • Executive Director

Many homeschool leaders get confused by these titles and the roles they have in a homeschool nonprofit organizations, so I created a visual way to explain these terms using a Venn diagram (can you tell I used to be a homeschool mom?!)

Here’s an excerpt from the two part video set

Board Training for Homeschool Groups

The full video set is available for purchase at HomeschoolCPA.com/Board Training.



Bonus offer: Buy before April 11, 2022


If you purchase the Board Training for Homeschool Groups video set before April 11, 2022, you will be invited to a live Zoom call in to ask hosts Carol Topp and Becky Abrams any questions you have about nonprofit boards for homeschool organizations. The live session will be offered on Monday April 11, 2022 at 8 pm EDT. The recording will be added to the video set, so you will get three videos!

The video set costs $40 and includes two videos each about 40-50 minutes and a copy of Carol Topp’s ebook Homeschool Board Member Manual..


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Non-profit or for-profit for a homeschool co-op?

I am planning to start a homeschool nature-based co-op, where the parents will stay on-site, and we will meet 1-2 days per week. I believe we would be a for-profit organization. Is there some reason to choose non-profit status versus for-profit, in the case of a homeschool co-op? Any insight on how to get started would be very helpful. I have been a small-business owner for many years, but have never been in the non-profit administration world.
Shay

Shay,

Let’s start by addressing the word “co-op.” A homeschool co-op is a group of parents voluntarily cooperating to teach each others’ children. The word voluntarily is important. Co-ops depend on volunteer labor. So most co-ops are formed as nonprofits. A business cannot have volunteers working for it. That’s a violation of the Fair Labor Standards Act. So if you run the group as your business, you cannot have volunteers. Everyone must get paid if they work for the business.

But maybe you meant “co-op” in a broader sense to mean a group of homeschoolers. Your business can sell a service to a group of homeschool families. But that’s not a co-op and you shouldn’t call it a co-op. It confutes the customers.

There are many reasons why homeschool co-ops form and operate as nonprofit organizations rather than businesses. I already explained the first reason: volunteers. Here’s the more of reasons:

  1. Volunteers: a businesses cannot have volunteers working for it. A nonprofit can have volunteer labor. So homeschool co-ops that depend on volunteer labor are formed as nonprofit organizations.

  2. Ownership and Control: A nonprofit is not owned by anyone; the volunteer board runs the group and decides what everyone will get paid. The board can fire any staff including the Executive Director (the head honcho) and hire another Executive Director. The board can also vote to remove other board members including the founder. So if you want to remain in control, then you may chose to operate this homeschool group as a business. Don’t call it a co-op and don’t expect the parents to help out. Call it a homeschool service.

    This issue of ownership and control is a big stumbling block for many. Some homeschool leaders want so much to remain in control that they run their groups as a business owned by them. That’s perfectly legitimate. But then they miss out on tax benefits, donations, volunteer labor and the support of a board.

    I had a phone consultation with two women, former teachers, who wanted to start a homeschool program. Their lawyer joined in on the call. They said they were considering forming as a nonprofit and wanted 501c3 status as an educational organization. I explained that as the founders, they would have to surrender control to a board. They could serve on the board as volunteers. If they wanted to be paid, they would no longer be voting members on the board. They didn’t like the sound of that. They politely but firmly said they wanted to remain in control. So I advised them to operate as a for-profit businesses, likely a partnership. The call ended after 5 minutes. I never got to explain the rest of this list! Ownership and control was the tipping point for them.

    Many leaders, especially the founders, ask how they can remain in control and still lead a nonprofit group. I explain they cannot be in control, but they can influence who is on the board. Nonprofits can have the board replace itself with like-minded individuals. That keeps their vision and mission where they want it. This is mostly what they care about: keeping the vision and mission pure.

  3. A team/board helps carry the responsibility: When you run a business, all the responsibility is on your shoulders. All the profit is yours as well, but you don’t have anyone else to help shoulder the responsibility. It’s all on you. I frequently have this conversation with homeschool leaders. I explain the liability they carry for things like record keeping, taxes, background checks, rental leases, safety, insurance, hiring, firing and paying workers. Here’s a list of liabilities and responsibilities you carry as a business owner using a Classical Conversations Director in this case: Liabilities CC Directors Carry.

    In a nonprofit these responsibilities are carried by a group of people: the board. The workload is spread out. The treasurer handles the finances. The officers sign the leases. The board as a whole makes decisions.

  4. 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. Businesses cannot get tax exemption nor accept tax deductible donations. Any fundraisers belong to the owner and she must report it on her taxes as taxable income. So if you want and expect to get donation or grants, you should form as a nonprofit, not a business.

  5. Profit motive. Nonprofits have a mission other than profit. The purpose of a homeschool nonprofit is primarily education, but faith-based homeschool groups have an religious purpose as well. For-profits are presumed to have profit as their primary motivation. While many business owners are also motivated by an educational or even religious purposes, at the end of the day the general public, your customers, and federal, state and local governments all assume you are in business to make a profit.

  6. Other perks including Use of property-tax-exempt facilities such as churches, parks and libraries. Most churches, public parks, and libraries limit the use of their buildings to nonprofit organizations, so they can avoid paying property tax. A bushiness should notify the church, park or library that they are not a nonprofit homeschool group, but are a business.

Does that help you sort though the differences between running a homeschool group as a nonprofit or as you for-profit business?

I would estimate that probably 80-90% of homeschool groups are run as nonprofit organizations, primarily for reasons 1,3,4 and 6 (volunteers, teamwork, tax exemption, and use of tax-exempt property). For-profit business owners are swayed by reason # 2 (control) and #5 (profit).



For more information on forming your homeschool group as a nonprofit my books may be very helpful particularly:

Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out

The IRS and Your Homeschool Organization


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

I started a nonprofit CC Community. Can I pay myself?

Greetings, I’ve started a Classical Conversations Community in Washington state. To be able to host my community at my church, we were asked that we create a non-profit organization so I did. I created a separate non-profit banking account from my personal account, thankfully. Honestly all money that has gone out has been for supplies and Independent Contractor payments. Although, it would appear within the CC framework that I can pay myself, I’m unclear with the non-profit status if I actually should, so I have taken no stipend at all for my work.

Can I actually pay myself a small stipend to help off set my personal expenses?

Thank you for any and all help you might be able to offer. I’m feeling extremely overwhelmed with all of this.

-WA

Dear WA,
Last week I talked with another CC Director in Washington State who formed a nonprofit. Her situation sounds very similar to yours.

Both she and you seem to lack a board or team of leaders. You see, a nonprofit is not owned by anyone (unlike a for profit business which does have an owner). Nonprofit organizations are operated by a board or team of people. This board the hires and pays staff such as you, the Director, or the tutors.

So to answer your question: No, you cannot pay yourself. A board of people unrelated to you by marriage, blood or business relationship, must vote on what all workers get paid. That is how a nonprofit is very different from a for profit business.

Resources

My book Paying Workers in a Homeschool Organization explains how a CC nonprofit should be paying its Director and tutors (i..e, as employees not as Independent Contractors).

The book is available in paperback $9.95 or ebook format $3.99

You’ll find my latest ebook Business Q&A for CC Directors to be full of questions just like yours from CC Directors and my answers. There are so many issues to learn and understand when running a Classical Conversations Community. Get accurate information on running your business from a CPA who has consulted with dozens of CC Directors.

Ebook (pdf) format only: $10.00

I think you will find both books very helpful!


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

End of Year Tasks for Nonprofit Homeschool Groups

Happy New Year! In the new and out with the old.

But wait! Not so fast!

There are several tasks a nonprofit homeschool group needs to do to finish out the prior year before forging ahead.

1. Wage Form W-2 to employees by January 31st:  Your treasurer should furnish Form W-2 to employees who worked for your organization during the past year by Jan 31st.
The cover sheet for the W-2s, called a transmittal form W-3 transmittal form is due the end of January as well.

2. Independent Contractor Form 1099-MISC are also due January 31. Provide a Form 1099-MISC to individuals paid $600 or more in 2019 for performing a service for your nonprofit. Like the W-2s, the 1099s have a cover page, Form 1096 transmittal form that is also due by Jan 31st.

In 2020, the IRS will be replacing the 1099-MISC for non-employee compensation with a separate form called 1099-NEC. It will be used in early 2021 to report 2020 payments to independent contractors. Click here to see the IRS draft.

PaperW-2s and 1099-MISCs are a nuisance to fill in and mail, so do what I do and file online.
I used a service called Yearli.com for years. They are fast, easy and inexpensive.
Check them out! https://mbsy.co/rzrbp
Using this link gets you a 15% discount and (full disclosure) I make a small commission.

The start of a new year is a great time to determine if your workers should be classified as an employee or independent contractor.

Worker misclassification is a serious issue and can cause significant financial hardship and has caused several businesses to close. Penalties for misclassifying a worker as an independent contractor are very stiff and strictly enforced so now is a good of time to make sure every one of your workers are properly classified. Read more here

My book Paying Workers in a Homeschool Organization will help to determine if a worker is an Independent Contractor or employee.

For more specific advice, I offer a Worker Classification Consultation.


3. Contribution statements for donations your nonprofit received in 2019. A donation is recorded when it is received even if you don’t deposit the check until the new year. The only exception to that rule is if you receive a check in the mail and the envelope is dated December 31st or before. You can count that as a donation in 2019.
Your contributions statements to donors should be mailed in January so donors can prepare their tax returns.

Those tasks will keep your treasurer (or hired bookkeeper) pretty busy in January!

If you’re needing bookkeeper, I recommend Mary Musick, CPA (inactive) and current homeschool mom. Mary runs a bookkeeping service and can help your homeschool nonprofit with bookkeeping and payroll. Her email is hfbkkpg@gmail.com.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders