Who owns a nonprofit?
A major misconception about nonprofit organizations concerns ownership of a nonprofit. No one person or group of people can own a nonprofit organization.
Ownership is the major difference between a for-profit business and a nonprofit organization. For-profit businesses can be privately owned and can distribute earnings to employees or shareholders. But nonprofit organizations do not have private owners and they do not issue stock or pay dividends. And while nonprofit organizations can earn a profit (a ?surplus?), that income must be reinvested in the nonprofit organization. It can be used to benefit or expand programs. But that income cannot be distributed to persons.
Who manages and controls a nonprofit?
So, there is no owner of a nonprofit. But there is management and control.
Once incorporated, the newly created nonprofit organization is a separate legal entity from its incorporators, directors, officers, and employees. The nonprofit corporation owns all assets of the business and is entitled to receive all profits from its operation.
Most nonprofits are managed by boards; other may be managed by voting members. When a nonprofit first begins operating, the board members, along with the founder(s), may be performing many of the tasks of the organization. As the nonprofit grows, the board may begin hiring staff members to develop and lead programs as the board and/or voting members continue to oversee the organization.
Read more about the management of a nonprofit.
What about the founder?
The founder does not own the nonprofit.
Starting a nonprofit organization takes a considerable amount of time and effort. When a nonprofit founder invests his own time, and often his own money, he can feel like he owns the organization he brought into fruition.
Often times the founder will serve on the initial board of directors, which manages the nonprofit. The board safeguards the public?s interest to ensure that the organization operates?in accordance with its mission and the purpose for which it was granted tax-exempt status and protects the assets of the nonprofit.
As a member of the board of directors, a founder has the same responsibilities as other board members. While a founder may feel closer to the mission and the organization, a founder has no ownership rights regarding the nonprofit corporation.
Is the nonprofit accountable to anyone?
Yes.?While no one individual owns a nonprofit, the organization is accountable to the general public, state attorneys general, and the IRS, among other groups.
- The General Public. Nonprofits are created to provide a charitable purpose to the public good, whether as charities, educational programs, churches or religious groups, or scientific or artistic organizations. As such, the nonprofit is accountable to the general public.
- State Agencies. Nonprofits must also comply with regulations in the states in which they operate. These may also require public disclosure of specific documents in addition to filing periodic reports.
- The IRS. As a tax-exempt entity, a nonprofit corporation must follow rules set by the IRS to keep their tax-exempt status. These rules also require that specific documents, such as records, books, annual reports, and annual returns, be made available for public inspection during business hours.
Can a nonprofit be sold?
No. A nonprofit cannot be sold to another individual or organization. Additionally, the assets acquired by a nonprofit were acquired with the understanding that they will be used to further the mission of that organization. If a nonprofit decides to cease operations, the organization must settle all debts and distribute all of the nonprofit?s remaining assets to another nonprofit corporation before it can be dissolved.
Learn More:
It should be noted that some states do allow nonprofit corporations to issue stock and own stocks. This is not common and it is not discussed above. Contact us for state-specific inquiries.
Cullinane Law Group: Can the Executive Director Serve on the Board?
Cullinane Law Group: What are the Duties of Nonprofit Directors?
Cullinane Law Group: Nonprofit Corporation Vs. 501(c)(3) Organization
The Cullinane Law Group?works exclusively with the nonprofit tax-exempt sector: new nonprofits, foundations, religious groups, and social entrepreneurs throughout the United States who seek to create positive change.?Contact us?today to learn how we can help your organization.
Source: http://www.cullinanelaw.com/nonprofit-law-basics-who-owns-a-nonprofit/
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