No profit & a good heart does NOT a "nonprofit" make.
10:59, 15 July 2009
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"We're a nonprofit because we don't profit, right?"It's happened again: a group of people with good heart thought that, because they were focused on helping charities and because they weren't making a profit, that made them a nonprofit organization -- and that claim is now getting them into trouble and could derail all of their work.
I read this scenario again and again online: a group of people come together with the best of intentions and want to raise money to help someone or something that needs help. They think their desire and the nature of their work automatically grants them the designation of "nonprofit" or "charity." They start using those designations to describe themselves, they ask for donations, sell products and services, and put all the money into one of the organizer's bank account. But, sooner or later, they get into trouble. For instance, since they aren't really a nonprofit or charity, the government wants to tax all individuals who have accepted donations for the group's efforts, regardless of where those donations have ultimately ended up.
How can it be better communicated that, at least in most countries, you cannot claim to be a nonprofit, nor a charity, and you cannot accept non-taxable donations, unless you have official government paperwork saying such -- particularly if you accept donations or sell products or services?
A surprising number of these groups are online. So maybe the Internet could be better used to educate these nonprofit and charity wannabes?
Let's be clear: in most countries, a nonprofit organization or charity is a type of business. Yes, that's right: a business. The nonprofit organization or charity is allowed to make a profit. It is allowed event make lots and lots of profit. It is allowed to pay competitive salaries to its staff members, pay for really nice offices, pay for an interior decorator, etc. What makes such a properly registered business a nonprofit or charity is that profits may not be distributed to the owners (the board of directors). The profits must go back into the organization -- to pay rent, staff annual salaries (but no profit sharing checks), program costs, whatever. There are also specialized tax rules and accounting practices that apply to nonprofit organizations.
There's terrific, free, detailed information all over the Internet and maybe even in your city to support nonprofit organizations:
- Start with the Free Management Library. Most of the information is USA-centric, but much of it is applicable to other countries.
- In the USA, most offices of the State Attorney General have web sites specifically for nonprofits registered in that state, such as Kentucky and Oregon.
- Many developing countries have associations for nonprofits that can help fledgling nonprofits or charities, such as in South Africa or Black Sea NGO Network.
- See if there are any local (city or county) agencies that support nonprofits.
- In the USA, contact your local United Way or public library to find out if your community is served by a nonprofit support center, such as the Center for Nonprofit Excellence in Louisville, Kentucky.
- Contact faculty at the nearest university or college with nonprofit management-related classes for assistance in forming a nonprofit organization.
