NONPROFITS John R. Hocker SCORE Chapter 1 Nonprofit Mentor Washington, DC area OUTLINE • • • • • • • • • Types of Nonprofits Why Nonprofits? Myths & Realities about Nonprofits The Nonprofit - 501(c)3 A Nonprofit Checklist The Nonprofit Board Nonprofit Websites Nonprofit Marketing (ABC) Potential Pitfalls Code 501(c)1 501(c)2 501(c)3 501(c)4 501(c)5 501(c)6 501(c)7 501(c)8 501(c)9 501(c)10 501(c)11 501(c)12 501(c)13 501(c)14 501(c)15 501(c)16 501(c)17 501(c)1-17 Description Deductible Act of Congress - e.g. Federal Credit Union Title Holding for Exempt Organization Religious, Educational, Charitable, Scientific, etc, etc Civic Leagues, Social Welfare Orgs, Local Employees Labor, Agricultural/Horticultural Orgs Business Leagues, Chambers of Commerce, etc Social & Recreational Clubs Fraternal Beneficiary Societies & Associations Voluntary Employees Beneficiary Associations Domestic Fraternal Societies & Associations Teachers’ Retirement Fund Associations No Benev. Life Ins. Assns, Ditch Cos, Mutual Phone Cos. Cemetery Companies State Chartered Credit Union, Mutual Reserve Funds Mutual Insurance Companies/Associations Cooperative Orgs. To Finance Crop Operations Supplemental Unemployment Benefit Trusts No Yes/Maybe No Yes No No No No Maybe No Maybe No Yes No No No 501(c)18-28 & 501(d)-527 Code 501(c)18 501(c)19 501(c)21 501(c)22 501(c)23 501(c)25 501(c)26 501(c)27 501(c)28 501(d) 501(e) 501(f) 501(k) 501(n) 501(q) 521(a) 527 Description Deductible Employee Funded Pension Trust (before 1959) Org. Of Past or Present Members of Armed Forces Black Lung Benefit Trusts Withdrawal Liability Payment Fund Veterans Organization (created before 1880) Title Holding Cos or Trusts w/Multiple Parents State Org. Providing Health Coverage (Hi Risk) State Workers’ Compensation Reinsurance Org. National Railroad Retirement Investment Trust Religious & Apostolic Associations Cooperative Hospital Service Organizations Coop. Svc. Orgs. Of Operating Educational Orgs Child Care Organizations Charitable Risk Pools Credit Counseling Organization Farmers Cooperative Associations Political Organizations No No No No No No No No No No No Yes Yes Yes Yes No No Why Nonprofits • To provide services that governments cannot • For the public good, without profit objective • Leverage public, corporate and philanthropic assets • Connect people to each other and resources • Improve quality of life • Engage people on civic issues • Stimulate reform Myths & Realities About Nonprofits Myth 1: Nonprofits only employ volunteer labor Reality: Nonprofits employ 13.7 million Americans – 10% of entire workforce 261,000 in MD (43,700 in Montgomery Co) 365,000 in VA 213,000 in DC Myths & Realities About Nonprofits Myth 2: Nonprofits do good but contribute little to the economy Reality: The nonprofit economy is so big that if it were a separate country, it would have the 7th largest economy in the world Total purchasing power of Nonprofits in Montgomery Co. MD is $4 billion. VA Nonprofits generate $39.2 billion revenue Myths & Realities About Nonprofits Myth 3: All Nonprofits are the same. Reality: Nonprofits come in all shapes and sizes. While there many large, national nonprofits headquartered in the Greater Washington, DC area, most nonprofits are smaller and focused on the concerns of their communities. Myths & Realities About Nonprofits Myth 4: Nonprofits not business minded. Reality: Nonprofit sector employment weathered the recent recession better than other industries. National Employment 2000-2010: Gov. +8%, Business -6%, Nonprofit +17% Myths & Realities About Nonprofits Myth 5: Nonprofit jobs are for people who could not make it in the business world. Reality: The nonprofit workforce is as well educated and skilled as its for-profit counterpart. Myths & Realities About Nonprofits Myth 6: Nonprofits are only in the United States Reality: Non-Governmental Organizations (NGOs) are in almost every country. US has over 1.5 million nonprofits, Russia has over 277,000 NGOs, China has 460,000, and India has over 3.3 million, and the list goes on. 501(c)3 Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Donations are tax deductible Good Example of Nonprofit Logo So Others Might Eat Nonprofit Checklist 1 • Select a Name, Mark & Logo (register Logo & domain) • Draft Mission Statement (who, what, where, when) • Write Strategic Plan (goals, objectives, strategy, initial budget) (Attend SCORE Workshop) • Begin Recruiting Board Members • Get a Lawyer (on Board if possible) • Select a Bank, open account as Nonprofit • Hire an Accountant (CPA – Form 990) • Buy Insurance (liability, property, D&O) • Draft Articles of Incorporation (w/Dissolution Clause) Nonprofit Checklist 2 • • • • • • • • • Prepare Draft Bylaws (1) File with State as Nonprofit (2) File for tax-exemption with IRS: Form 1023 (3) Re-file with State for Tax exemption (letter) Get City Property and other Tax exemptions Apply for Solicitation License (local if necessary) Get Mail Permit (if needed) Get Federal Employee Number (SS-4 or online) Unemployment Insurance (employees) The Board • • • • • • • • • • Minimum Number Depends on State (1-3) Board Directs Activities on behalf of Public Defines Mission Approves Strategic Plan, Bylaws, Articles Unpaid Bylaws govern (Meetings, minimum – 1/year) Initial Meeting Minutes – Very Important Sets salary of employees (Fair & Reasonable) Principal Fund-Raisers: {Give, Get, (Get Off)} Should not run Nonprofit’s day-to-day activities Nonprofit Websites (http:www.) • • • • • • • • • • • • Irs.gov/charities Citmedialaw.org/legal-gui-de/districtcolumbia/forming-nonprofit-districtcolumbia Citmedialaw.org/legalguide/virginia/forming-nonprofitcorporation-virginia Sos.state.md.us/charity/nonprofit.aspx Nolo.com Managementhelp.org/strt_np.htm Nonprofitmanagement.suite101.com Legalzoom.com/sem/nonprofitpage Nonprofitissues.com/public/indices/by feature/point.html Charitynetusa.com Foundationsearch.com Bigdatabase.com • • • • • • • • • • • • • • Nonprofitroundtable.org Nptimes.com Box.net/shared/tgft7ujmsp Snpo.org/index.php Wikihow.com/start-a-501c3-nonprofitorganization Nonprofit.about.com/od/nonprofitbasi cs/a/classifications.html Nonprofit.alltop.com Clickandinc.com/business=formation/n on-profit 2.guidestar.org 501c3.org Idealist.org/if/i/en/gaqcat/62-42 Taxesq.com/nonprofitcorporations.asp Intuit.com/free-website-builder Nonprofit.about.com Nonprofit Marketing Aggressive Bold Communicative Potential Pitfalls Loss of 501(c)3 Status • • • • Family Board Members (Self Dealing) Excessive Executive Compensation Failure to file annual 990 (990N or 990EZ) form Failure to meet income rule (public funding is equal to or greater than 1/3 total) • No Government EIN • UBIT (Unrelated Business Income Tax) • Failure to maintain Corporate Documents (Articles of Incorporation, Bylaws, Minutes of all board meetings (especially 1st), membership lists)