Non Profit Ownership: Everything You Need to Know
A non profit ownership structure, unlike a for-profit company, does not include shareholders and does not determine ownership by a percentage of shares.3 min read
2. Nonprofit Ownership: Benefiting the Public
Updated November 18, 2020:
A non-profit ownership structure, unlike a for-profit company, does not include shareholders and does not determine ownership by a percentage of shares. Determining the ownership of a nonprofit can be difficult. In fact, no one person or group of people can own a corporation.
There are some situations in which a nonprofit corporation can issue stock and, even more rarely, in which people can have ownership in that stock. But in these unique cases, these individuals would still not be considered owners even if they controlled most of the stock.
When someone refers to the ownership of a nonprofit organization (NPO), it is often used metaphorically to show that the members, clients, employees, and directors of an NPO have a stake in the organization's success to continue to provide needed programs.
While a nonprofit organization might not have outright ownership, it does have primary control. Control of the organization is often given to the person who has the power to select board members. Because board members have the voting ability to make decisions for the company, the person who appoints them will retain the ultimate authority over the company.
Forming a Nonprofit Organization
There are some vital things to consider when forming a nonprofit organization. Knowing these issues can help make your organization more successful in the future. Things to note include:
- Your nonprofit corporate statute will be limited bylaws in the state where it was formed.
- Shares of nonprofit stock are not traded on stock exchanges, and any equity the organization has belongs to the organization.
- You are allowed to sell off all nonprofit assets, but the profits from the sale must be used to benefit the organization.
- An NPO cannot pay dividends to shareholders.
- A nonprofit organization can earn a surplus, but it must be reinvested back into the company.
- Once a nonprofit is officially incorporated, it becomes a separate entity from its incorporators.
- The company can be managed by a board or voting members.
- The founders and board members can perform any duties related to the organization.
- If a nonprofit organization grows, it can hire employees to run programs while still having the board oversee it.
- Even though groups and individuals cannot own a nonprofit, they might still be responsible for the legal and ethical duties that come with ownership.
Nonprofit Ownership: Benefiting the Public
A nonprofit organization is formed with the primary purpose of benefiting the public in some way. This is why NPOs are sometimes referred to as public benefit corporations. Companies can be created to help a class or group of people, such as those suffering from a certain medical condition. You cannot start a nonprofit organization for individual gain or to benefit one specific person or family.
When creating a nonprofit, you are supposed to be creating it to benefit the public. However, you can still pay yourself a reasonable salary for the work you perform, as long as your ultimate goal is not to profit from the business. You also can make money on your NPO and have a surplus at the end of the year from your efforts. But unlike a for-profit, those funds must go back into the nonprofit's programs and cannot be distributed to any employees or shareholders of the organization.
In recent years, with media exposure and reports of excessive nonprofit employee salaries, there has been concern about the accounting and finances revolving around these organizations. Because a nonprofit has a government-granted tax-exempt status and contributions made to the organization are tax-deductible, it requires more accountability to the public than does a privately held business.
To help make nonprofits more accountable, they must follow certain guidelines. A nonprofit with revenue above $25,000 will have to file a Form 990 each year to the IRS. This form provides a summary of the organization's income and expenses. This will reveal any staff or consultant income that is higher than $50,000. Even if your NPO does not have a revenue of $25,000, it is still advisable to file a 990 report to let the IRS know you are still operating and to provide donors with information on where their funds are going.
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