The Nonprofit

&
The Nonprofit Sector

Sondheim Nonprofit Leadership Program

Session 1: June 8, 2009
 The Seminar
Today

What is a Nonprofit?

What does the Nonprofit Sector look like?

What’s it take to start a Nonprofit?

Future Sessions

Running a Nonprofit

Your Project

Build-A-Nonprofit
What’s a Nonprofit?
 The 501(c)3

Has a Purpose in accordance with section
501(c)3 of the IRS Code

IsThe exempt purposesNon-stock
a Tax-Exempt, set forth in section 501(c)(3) are
Corporation
charitable, religious, educational, scientific, literary, testing for

Has been
public safety,approved for tax-exemption
fostering national from
or international amateur
the IRS
sports competition, and preventing cruelty to children or
animals. The term charitable is used in its generally accepted
Cansense

legal receive tax-deductible
and includes relief of the charitable
poor, the distressed, or
contributions
the underprivileged; advancement of religion; advancement of

education
Can or science; erecting or maintaining public buildings,
make money
monuments, or works; lessening the burdens of government;
Has a clear

lessening separation
neighborhood of governance
tensions; and and
eliminating prejudice
operations functions
discrimination; defending human and civil rights secured by
law; and combating community deterioration and juvenile
delinquency.
 The Real Differences
For Profit Nonprofit
(Does not mean tax exempt)

Owners/stockholders Members

Individual control Board control

Distributes dividends No profit distribution
Can sell stock to raise Rely on tax deductible
income contributions
Gov’t contracts, fees for Gov’t contracts, fees for
services services, grants

Doctrine of Private Enurement

 The Corporation

Forms must be filed routinely with the state
and federal government

Form No. 1 – Personal Property Return

Financial and other records must be

maintained

Can be requested by members and public

Provides legal protection

 Types of Nonprofits

501(c)(3) 501(c)(4) 501(c)(6)

Charitable, religious, Civic leagues, social Business leagues,
educational, welfare orgs. chambers of commerce,
scientific, literary etc.

MD Nonprofits; League of Conservation Vulcan Blazers, Inc.

Advocates for Children Voters (Assoc. of Black Fire
& Youth, Red Cross Fighters)
Limited lobbying Substantial lobbying Substantial lobbying

No partisan electoral Electoral activities must Electoral activities must

activities be secondary be secondary
 Other 501(c) Organizations

(c)(7) Social & recreation
clubs

(c)(7) & (10) Fraternal
beneficiary societies

(c)(4), (9), (17)
Employees’ associations

(c)(12) Life insurance
assoc., telephone co.

(c)(13) Cemetery co.

(c)(14) Credit unions

(c)(19) Veterans’
organizations

(c)(20) Legal services
plans

(c)(21) Black lung benefit
trusts

(c)(2) & (25) Title-holding
corporations

(c)(26) State high-risk
health coverage orgs.

(c)(27) State workers’
comp reinsurance
 Tax-Exempt – What it Really Means
Organizations Don’t Pay Organizations Do Pay /

Federal Corp. Income Withhold
Tax
Employment Taxes

State Income Tax
State

State Sales Tax Unemployment

Social Security

State Property Tax (?)

Medicare

Contributors Don’t Pay

(Businesses, Individuals, other Patrons Do Pay
Nonprofits)

Sales Tax

Taxes on contributions
to organizations
 The Nonprofit Sector

Public Opinion

Competition for Funding

Federal and State Legislation

Maryland Statistics
 Public Opinion

Public Opinion

Confidence / Expectations in Nonprofits

History of scandals (tax tricks)

Disconnect between opinions about quality of
service versus quality of organizations

Questions about who to support?

 Public Opinion
Who does the best job of providing services to
people in need? (N=1,557)

62% Religious/Charitable/Community
Organizations

28% Government

NPR-Kaiser-Kennedy School Poll

Attitudes Toward Government May-June 2005
 Public Opinion
How much confidence do you have in charitable
organizations?
60%

50%
50%

40%

30%
25%

20%
15%

10% 7%

0%
A Great Deal A Fair Amount Not Too Much None
 Public Opinion
It's getting more and more difficult to be sure that these new
charities that contact me for the money are responsible,
legitimate organizations.

50% 47%

40% 38%

30%

20%

10% 8%
3% 5%

0%
Strongly Mostly Agree Mostly Strongly Can't Say
Agree Disagree Disagree
 Public Opinion
I wish there were some book or even an Internet site where I
could check to be sure that I'm giving to a worthy cause.
60% 56%

50%

40%

30% 27%

20%

10% 6% 5% 6%

0%
Strongly Mostly Agree Mostly Strongly Can't Say
Agree Disagree Disagree
 Competition for Funding
Increase in the Number of Nonprofits - US
1200000

6
62
4,
97
1000000
2

800000
77
1,
63

1999
600000
2009
400000
10 7
1
56

09

84
75
7,

9,
200000
12

,2
,5
71
68
0
501(c)(3) 501(c)(4) 501(c)(6)
 Competition for Funding
Increase in the Number of Nonprofits - Maryland

25000
11
,8
21
46
,8
18

20000

15000
2002
2008
10000 5

5000 1
17

3
96

8
29
26
2,

1,

1,
1,
0
501(c)(3) 501(c)(4) 501(c)(6)
 Federal and State Regulatory
Scrutiny

US Senate Committee on Finance

Hearings on Charity Oversight and Reform

US House of Representatives Committee on
Ways and Means

Hearings on the Tax Exempt Sector

Internal Revenue Service – New 990

Joint Committee for Purchase/JWOD

State Attorneys General, proposals in 19
states
 Nonprofit Accountability

Public Opinion

Easily swayed / high expectations /

Limited confidence

Looking for easy answers

Competition for Funding

How do you set yourself apart?

Federal and State Regulatory Scrutiny

Demonstrate the ability to self regulate
 501(c)3 Distribution - Annual Income

750
1,157
788
972

1,593 Under 25k

25k - 100k
100k - 250k
250k - 500k
2,787 13,764 500k - 1m
1m - 5m
Over 5m
 Service Delivery
Arts
Animal Related 7% Community
2% Improvement
3% Crime &
Disaster
2%
Education
11%

Others Environmental
53% 2%

Health
7%

Human Services
13%
 Maryland’s Nonprofit Sector is a
Major Economic Force
14%
12.0%
12%

10% 9.5%
8%

6% 243,043 nonprofit workers

4%

2%

0%
Percent of Total Employment Percent of Private Sector
Employment
 Giving
Unallocated, 9%

Foundation,
10%
Religion
Related, 33%

International,
4%
Environment &
Animals, 2%
Social Benefit,
7%

Arts & Culture,

4%
Education, 14%
Human
Services, 10% Health, 7%
 Marylanders Feel a Strong Connection
to Charities
How important are nonprofits to the well being of you and
your community?

Overall Well
70% 65% Being
60% 47% Self & Family
50%
35%
40% 29%
30%
20% 10% 6%
10% 2% 1% 3% 2%
0%
Very Somewhat Not too Not Can't Say
Important Important Important Important at
all
 Starting a Nonprofit

Is it the Right Choice

Get Organized

Build It

Board

Bylaws

File

Keep it Going
 Is a Nonprofit Right for You?
What are my choices?

Is there a need for something new

and/or different?

Are you organized enough to do it?

Do you need to solicit donations?

What are you willing to give up?

 Plan, Plan, Plan…

What’s the need?  Needs assessment

Who’s your team?  Board recruitment

Where do you want to be?  Strategic plan

What are you going to do?  Program plan

What’s it going to cost?  Budgeting

Who’s going to pay for it?  Fundraising plan

How will people know about it?  Marketing plan

How will you measure success?  Evaluation plan

What are the next steps?  Implementation plan

How will you present it?  BUSINESS PLAN
 Build Your Board

Recommend 5 Un-Related
People

Passionate / Understand
Mission

Clear Expectations

Willing to Work
 Bylaws - Set the Rules
Spell out the rules of conduct and authority for
the board, officers, & members

Board of Directors (volunteers)

Terms of office

How long can directors stay on the board?

Why limit?

Who elects successors

Officers (elected from board/members)

Pres., Vice Pres., & Secretary
 Bylaws - Define Membership

Members, if other than directors, and voting
(ex. community assoc.)

Classes of members

Rights/powers of members

Elect the directors

Approve Charter or By Laws Amendments

Approve merger or transfer of assets

Dissolve corporation

Inspect certain records of the corporation

Request a special meeting of members
 Bylaws - How Board Operates

Meetings

How many

Quorums

Committees

Conflict of Interest

Insurance, Indemnification, Compensation
and other provisions

Fiscal Year
 Articles of Incorporation

Incorporator
Board of Directors

Corporate Name
Membership
(State Dept. of
Duration
Assessments &
Dissolution
Taxation)

Indemnification

Purpose

Bylaws

Powers

Resident Agent
 IRS Form 1023
Application for Recognition of Exemption
Required if gross revenues exceed
$5,000; or organization is NOT a church
 IRS Form 990

501(c)3 version of income statement
990 EZ
Don’t File 990
(Electronic Filing)
Less Than
$200K Gross
Receipts
More Than
Church OR $200K/$500K
$500K of Net
Assets
 Running a Nonprofit

Governance

Operations

Programs

Staff / Volunteers

Funding
 Basing it All on the Mission
There are two rules of nonprofits.
1. The number one rule is “Mission, mission,
mission.” The mission should be the driving
force in all organizational efforts.
2. The second rule for nonprofits is “No money,
no mission!”

Peter Brinckerhoff