There is a lot of misinformation out there about not-for-profit organizations and the not-for-profit sector in general. To help you separate fact from fiction and better understand how not-for-profits operate, we have provided a list of common myths that people often have regarding not-for-profits. If you have further questions, please do not hesitate to contact B.I.G. Charity Law Group today to learn more!
Misconception # 1: All not-for-profits are charities
A not-for-profit is simply a business entity that does not distribute profits. It is not necessarily a charity. The purpose of charities is to engage in some sort of relief operation to benefit society, which will always be the purpose of that charity. Not-for-profits, on the other hand, can later choose to become for profit ventures. A notable example of this is the National Football League. Up until last year, the NFL operated as a not-for-profit organization. As you probably know, the NFL is not an organization whose purpose is to conduct charitable activities.
Misconception # 2: Not-for-profits do not make a profit
The term “not-for-profit” is often a major source of confusion. People assume it means the company cannot or does not make profits. Not-for-profits are absolutely allowed to engage in business that produces profits, but the profits cannot be distributed to private individuals. They must instead be used to pay company costs like overhead, salaries, etc, or they can be set aside to further improve or grow the company, commonly to contribute to community services the not-for-profit provides at no or reduced cost.
Misconception # 3: Non-for-profits are volunteer organizations
This misconception stems from the previously mentioned misconceptions that non-for-profits are only charitable organizations and that they do not make money. Many not-for-profits may utilize volunteers, but most of them are staffed by regular, paid employees.
Misconception # 4: Non-for-profit legal strategies are the same as a for-profit business
Many who recognize that not-for-profits are indeed business ventures are under the mistaken belief that they can approach a not-for-profit’s legal foundation the same way they would approach the legal strategy of a for-profit business. There are certainly some similarities, but not-for-profits are faced with unique legal challenges, particularly if they are interested in becoming tax exempt. They must adhere to strict regulations regarding things like business structure, and it can be difficult to stay compliant. It is important that you enlist the guidance of a lawyer who understands the legal nuances inherent in founding and operating a not-for-profit organization.
If you are interested in starting a not-for-profit, or if your existing nonprofit needs skilled and effective legal guidance, please contact B.I.G. Law Group now.