This is a big one; it's a big topic that I'll try to simplify and clarify for the reader as much as possible.
The Wikipedia Legal Definition of a nonprofit is a good place to start: a legal entity organized and operated for a collective, public or social benefit, in contrary with an entity that operates as a business aiming to generate a profit for its owners.
That seems pretty clear, right? -While the basic definition of a nonprofit isn't particularly confusing or convoluted, it somehow lends itself to so many misconceptions, misinterpretations and misunderstandings.
That in and of itself is part of why I wanted to blog on this topic.
So, according to the above definition a nonprofit must exist to serve some positive social purpose, right? -That is right, but let's not forget that the positive impact of a nonprofit can be highly focused and concentrated on a teeny-tiny fragment of the general population.
Here's an example of that: Lakeside Swim Club. This is a private swim club located in an affluent neighborhood of Louisville, where the (current) median sale price of a home is $360,000. source: https://www.redfin.com/zipcode/40205/housing-market
|A gorgeous view of Lakeside Swim Club|
To become a member of Lakeside, you must either live in the club's designated surrounding area, or be sponsored by someone that does live in the membership-designated area. Of course hefty sign up fees exist. ~At Lakeside there's a concession stand that sells yummy snacks like soft serve ice cream, pizza, burgers, and fountain drinks. All of this naturally costs money. And members even have to pay $10-$20/guest to take a friend to the pool with them.
And Lakeside is a nonprofit organization, under code 501c7. This, to some may seem absurd (due to its affluent membership). -To me, it does not.
After all, Lakeside is indeed organized and operated for a collective social benefit, albeit for a small portion, of this city's public.
Lakeside has swim teams (we all know the many benefits of exercise and team sports, especially for young people).
Lakeside offers a safe place for neighborhood youth to hang out, and 'just be kids.'
Lakeside is a gathering place for neighbors to experience community and friendship in a neutral, beautiful environment. And Lakeside is a haven for many of its area's retired population, helping keep these folks physically and socially active.
|Disclosure: Since 2022 we are members of Lakeside, we were sponsored in by an awesome Lakeside-area-resident, thank God. Pictured here, L to R, me, Dariel and Catalea (my son's friends), and Sammy, my 9 year old son.|
So, how thankful Lakeside's area residents must be that its founders had the grit, vision and know-how to preserve this awesome rock quarry and make it into a neighborhood swim club... nearly 100 years ago! -Every neighborhood should be so fortunate!
Now let's look at that second part of our definition of a nonprofit. It basically says that a nonprofit is different from a regular business since its not aimed at generating a profit, right?
It says this in so many words, but does not say, or mean, that a nonprofit business cannot make a profit. If you scroll down to the management section of that very Wikipedia article on defining a nonprofit, you'll find it states, 'nonprofits must manage incomes and expenses to remain fiscally-viable.'
I struggled with this when I decided to incorporate The Paw and Feather Plan into a nonprofit entity.
Initially I set up this rescue as an LLC, this was in part because I knew I would need to charge money for at least some of the rescue's services (pet adoptions, pet custodian, etc.) ...since I'm not independently wealthy and didn't have some magical reserve of cashflow to fund all of our work (it is work and money helps fund a lot of it!).
-I will never forget a lunch date I had with an attorney friend circa 2016, and her saying to me, 'it sounds like a lot of what you're doing would qualify as nonprofit work. Have you thought about restructuring as a 501c3?' I looked at her like she had two heads and said, "No. I'm not independently wealthy, this is a big idea I have, and I need to make some kind of profit for my work and time," and, I added, "I knew of a few very shady 'pet rescue nonprofits' in Miami when I lived there, and it seemed like all they ever did was ask for money, and I'm not doing that. -I do not want to fundraise. I don't like asking for money, or anything really. So just no."
She smiled politely, and probably thought, 'oh boy this woman has a lot to learn, but I am not the one with the time to teach her!'
She did however respond to my negative response with a promising phrase or two: 'No, that's not true. You can make money as a nonprofit; you're allowed to charge for goods and services,' and 'You don't have to fundraise all the time just because you're a nonprofit.'
At that moment a seed was planted: 'maybe I should consider restructuring,' I thought.
It wasn't until the pandemic lockdown of 2019 that I was able to revisit this topic seriously. ~After all, what better time than a lockdown to dive deep into the IRS.gov website, and take on a bunch of state, local and federal forms?! -So that's what I did.
We'll leave it here for now guys. I'll continue this post in a Part II (I knew this would be a complicated blog, damn it!).
In Part II we'll continue to look at common misconceptions about nonprofits, specifically pertaining to pet rescues. And I'll share with you whether or not I pay myself, and if so, how or how much? And, how do I file taxes as a nonprofit? -Like what's that all about? Watch for Part II to find out!!!
Thank You, Jessica