Tag Archives: Non-Profit

What You Need To Know About Starting a Non-Profit

What You Need To Know About Starting a Non-Profit from The Startup Garage

What You Need To Know About Starting a Non-Profit

Corporations usually acquire funds from government agencies and private foundations. They use these funds to achieve goals that aim at improving social benefits. If you want to fund a non-profit corporation and effect positive changes to the community, check out the following list. It will enable you to gain better understanding about the benefits and the drawbacks of non-profit corporations.

Non-Profit Qualifications

Many types of groups can seek non-profit status. The following ones may be eligible: childcare centers, shelters for the homeless, community health care clinics and hospitals, museums, churches, synagogues, mosques, and other places of worship, schools, performing arts groups, and conservation groups.

Tax Exemptions

Non-profit groups can gain tax exemptions when they obtain corporate status. Non-profit corporations usually get their tax exemptions from Section 501(c)(3) of the Internal Revenue Code. It not only enables a non-profit to be free from paying taxes, but also allows people and organizations that donate to the non-profit to take a tax deduction for their contributions.

Shielded From Personal Liability

Forming a non-profit corporation can protect its staff from the corporation’s debts and liabilities. If any employee obtains a judgment against the non-profit, this judgment can reach only the non-profit corporation’s assets. Personal assets of all the people working in the non-profits are shielded from personal liability.

Roles and Salaries

The board of directors run a non-profit corporation and they hire management team members. They oversee the financial area and do strategic planning. A board member can also be a payroll member working for the organization.

Profits and Exit Strategy

Profits cannot be divided among corporation members beyond reasonable salary payment. A non-profit corporation cannot be sold for money. If its board of directors decided to dissolve it, its debts and liability have to be paid off, and all its assets need to distributed to another non-profit corporation.

The government provides non-profit organizations with many benefits, but they also post some regulations to limit certain behaviors. It is necessary set up a consultation with a lawyer and know the benefits and drawbacks for a non-profit. Your strategy should take advantage of the laws and should be documented in your business plan.


Whether you have a question about Starting a Non-Profit, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

The Structures of Social Enterprise

The Structures of Social Enterprise from The Startup Garage

The Structures of Social Enterprise

We are beginning to see more and more companies begin to blend their traditional corporate structures with a more modern obligation to philanthropy and social awareness. Social Entrepreneurism is on the rise and suddenly profit isn’t the only driving force behind big business. Across the nation, various legislations have passed to establish new corporate structures that aid the social entrepreneur in improving environmental, educational, social, and economic conditions.


The Benefit Corporation

Legal state entities that mandate corporations focus on public benefits alongside their for-profit enterprise. Shifts mainstream thought away from maximizing shareholder value towards maximizing stakeholder value by placing an emphasis on social issues. Required annual reports provide transparency to the public and accountability toward the company. These reports are not required to be assessed by third-parties; however, this will change under California law in January 2012. (Read more about the difference between Benefit and B-Corporations in the blog below)

Available in: Maryland, Vermont, Virginia, New Jersey, Hawaii, California

The L3C

Formally known as a Low Profit Limited Liability Company, L3Cs are legal forms of business corporations that blend non-profit and for-profit investment efforts with a socially beneficial structure. With reduced regulations granted from the IRS, an L3C is classified organization that sets to attain social goals first, with profit second.

Available in: Vermont, Michigan, Wyoming, Utah, Illinois, North Carolina, Louisiana, Maine, Rhode Island

Flexible-Purpose Corporation

A Flexible-Purpose Corporation is a socially conscious enterprise that allows for extreme flexibility in their structure and processes. These corporations specify a “special purpose”, either with a social cause or charitable activity, in addition to their pursuit of seeking profit. While most business corporations focus mostly on maximizing shareholder value, the goal of Flexible-Purpose Corps is to have a structured legal organization where profit is pursued alongside social aims.

Available in: California

Main Differences:

  • Company profit is still an expressed purpose of a Flexible-Purpose and Benefit Corporation, with neither profit nor social issue outweighing the other. With an L3C, the public benefit comes first, profit second.
  • Flexible-Purpose and Benefit Corporations both produce annual reports on their purposes and objectives. Only in California, do Benefit Corporations require third-party assessment on the reports.
  • On a scale from a fully functioning Business Corporation to a Non-Profit, Flexible-Purpose Corps would tilt towards Business Corporations, while Benefit Corporations tilted towards Non-Profits. L3Cs would be the mark directly before a full Non-Profit.


Whether you have a question about Starting a Social Enterprise or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Overview of Common Non-Profit Legal Issues

Non-Profit Legal Overview from The Startup Garage

Overview of Common Non-Profit Legal Issues

There are two categories of common legal problems this post will discuss: the problems that arise by virtue of being a business (contract, employment and personal injury issues) and the problems that are common to non-profits (fundraising, lobbying, profit-seeking).  Here we will explain the former as they are more simple, and will reserve individual blog posts for the latter.

Contract disputes

  • Most of your everyday transactions will be based on a contract, either written or oral.  Make sure you are meticulous with the details of a written contract before you sign it, and try to avoid oral agreements.  A paper trail of your past agreements with their terms enumerated will be invaluable in protecting your non-profit if an issue arises.

Employment claims

  • Employment lawsuits are one of the biggest category of lawsuits against non-profits.  It is important that you are well versed in the relevant employment laws that apply to non-profits.  You can begin your research at the Department of Labor’s web site.  Some of the categories of employment claims include:
    • Wrongful termination: At-will employees may not be fired for an illegal reason, and contract employees must be fired with “good cause”.
    • Sexual harassment: Employers can be responsible for failing to prevent or responding inadequately to an employee’s claim of sexual harassment.
    • Discrimination: When it comes to hiring, firing, pay, shift assignments, promotions or access to training, you are prohibited from using race, color, gender, national origin, religion, disability, citizenship status or age as a criterion. In California, the additional criteria of ancestry, mental disability, medical condition, marital status, or sexual orientation are also protected.
    • Retaliation: If an employee has filed an action against your non-profit or has assisted someone else in doing so, you are prohibited from punishing them by denying them something they were otherwise qualified for.
    • Wage and hour claims: The laws that govern the worker/employer relationship are complex and may necessitate consultation with an attorney.
    • Defamation: The main context for a defamation claim is over an ex-employee’s reference.  Avoid issues by requiring a prospective employer to place a request for a reference in writing.

Personal injury suits

  • Personal injury claims can include physical injuries, property damage, emotional distress or damage to a person’s reputation.  There are many risk management strategies that can be utilized to minimize the risk of personal injury, including purchasing a general liability policy.

*The information contained in this post is provided for informational purposes only, and should not be construed as legal advice on any subject matter.  You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

Whether you have a question about Common Non-Profit Legal Issues, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Stage 4 of Non-Profit Incorporation: State Filing

State Filing Non-Profit Incorporation from The Startup Garage

Stage 4 of Non-Profit Incorporation: State Filing

Once all your federal forms have been filed, you can move on towards your state-specific forms. Each state varies in what type of forms they need submitted for non-profit organizations but a few of the typical forms include:

Application for state tax exemption

  • California requires a separate application for exemption from state taxes: Form 3500
  • For other states, search for state tax exemption in your state or look at your state’s Department of Revenue web site.  All state’s DoRs are listed here.

Application for a tax identification number

Register for permission to solicit funds for your organization and with the Registry of Charitable Trusts

  • The Registry manages and oversees the financial reports of charitable trustees and fundraising organizations. You can register at the Office of the Attorney General.
  • In California, forms are available on the Attorney General’s web site.

Filing your Statement of Information

  • This is your public disclosure of principle business activity and location, as well as the name of the CEO and other managers  The Statement of Information must be re-filed periodically.
  • In California, Form LLC-12.

To check what state specific files affect you and your organization, click here to learn more.


Whether you have a question about State Filing, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

501(c)(3): Public Charity vs. Private Foundation

501(c)(3): Public Charity Vs. Private Foundation by The Startup Garage

501(c)(3): Public Charity vs. Private Foundation

A public benefit corporation that files for tax-exempt status under 501(c)(3) to the IRS is further classified into one of two categories: public charities and private foundations.  The two classifications differ in the amount and type of paperwork that must be filed to the IRS, and you can read up further on the specifics on the Life Cycle of a Public Charity/Private Foundation page from the IRS.

Public Charity

  • A public charity normally receives a substantial part of its income, directly or indirectly, from the public or from the government.

Private Foundation

  • A private foundation receives a substantial part of its income from investments and endowments. The income is used to make grants to other organizations, rather than being applied directly to a charitable activity.


Whether you have a question about Public Charity vs. Private Foundation, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Overview of the Types of Non-Profits

Overview Of The Types Of Nonprofits By The Startup Garage

Overview of the Types of Non-Profits

Now that you have decided to start a non-profit organization, you must consider which legal structure you wish to use.  The most common form of non-profit is the non-profit corporation, and later in this blog series I will explain how you can file for incorporation if you wish to do so.  If you don’t want to go through the incorporation process, you can consider structuring your non-profit as either an unincorporated association or a trust.

Before you decide which structure is the best for you, consider the differences in choosing between the legal structures.  The main reason that a non-profit chooses to incorporate is to protect the management from personal liability from lawsuits or debt.  Depending on the type of work your organization will be doing, and the type of assets the organization will be buying or owning, chances are that you will want the legal protection of a corporation.  A corporation is a separate legal entity that has the capacity to sue and be sued, to own property and to make contracts.  But if the corporation cannot meet its financial obligations, the personal bank accounts of the people in charge of the organization will be protected.  Another option for your non-profit is to form a limited liability company (LLC).  A LLC offers legal protection similar to that of a corporation but is easier to form and manage.

Once you have engaged in a risk-assessment analysis for your organization’s activities and you have an idea as to how much liability you will be exposed to, you can narrow your entity choice options.  If you find that there is some exposure to risk, but perhaps not enough to justify the effort and expense necessary to file for incorporation, you can also consider investing in liability insurance.  Other options for minimizing liability include using waivers or operating under an umbrella group that has its own insurance policy.  Or you can try to eliminate the risky activities.


Whether you have a question about the Types of Non-Profits, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!