Tag Archives: Startup

Profit or salary, can I make one as a nonprofit founder? Real Talk Q+A

I had a couple questions come through from Cynthis and Tony . Tony  mentioned in a comment that because we are a non-profit you shouldn’t be making a profit or salary.  Basically where does the money come from? And then Cynthis had a very similar question which was, where does the money come from if you are a non-profit?

And one of the things that I say all the time is when you start your non-profit you have to understand that you are still an entrepreneur, you are still someone who is starting a business, and basically, the only difference between a non-profit and a for-profit is that the way that you’re taxed. And so, you are tax exempt, meaning that any funds that come in are not taxed by the federal government. They are giving you that because you’re making a charitable contribution, and you’re a charitable entity. So, if you were someone who started something and whatever that may be and you’re a non-profit, if you’re a non-profit all that means is that your whole goal is truly running off of purpose, and your whole makeup of your organization is to do a charitable outcome, to provide charitable outcomes, and to provide social impact.

So with that all being said, you still have to be paid, you still have to … and you don’t have to be obviously, there are a lot of non-profit founders that don’t get paid, but when you think about like your health, let’s just use that as an example. You can’t do any job if you don’t have your health, right? You can’t be productive if you don’t have your health. If you have a business and you don’t pay yourself you can’t be productive in your business without putting that money back into your business, which would be paying yourself, paying for administration costs, paying for operations, and having all those types of things in your budget.

So I guess the real question here is, where does the money come from and how can you pay yourself? So, the money really comes from putting that into your budget and making the sustainable plan. Now, when you create a business generally most people create a business plan, a marketing plan, operations plan, operations budget, things like that. So, you need to be thinking about, when my donations come through what percentage of your donation … and this is the simplest way I can put it. What percentage of your donation needs to go towards admin costs, which would include your salary or any staff salary that you may have, which would include still providing the services that you have and the operations that you need. So, if you need ink, or you need to print papers or whatever it is stamps. I have to pay for a mailbox because a lot of the ways that our program works, works off of a P.O. Box. And so, I don’t necessarily have the overhead of a building but I do have the overhead of printing, and stamps, and website updates, and things like that, that I have to pay for in order for the program to work.

When you have your sponsors and things the most important thing you can do is really just be transparent and provide that information for your sponsors and the people who support you so that they know where those funds are going. And that’s really the key to running a non-profit and paying for those types of expenses.

In some of my other videos, I talk about benchmarking, knowing exactly what you do and how much other people who do that same thing in the for-profit sector also make. And so, if you’re raising enough funds to pay yourself then absolutely you should be making a profit and paying yourself. And, profit is not a dirty word. I say that all the time, but I think a lot of people have that misconception that if you start a non-profit, that if you say, “I’m making a profit,” or, “I am paying myself,” that, that’s a dirty word. And that’s my goal here on The Social Life, it’s like you still are running a business, and you’re basically running a charitable business, and that in itself is you’re giving a social impact and you are also running a business. And in order for the business to continue working, you have to be compensated for that, for your time, for your effort. If you’re not there then the program can’t work and then you don’t provide the social impact. And that’s why you see a lot of fledgling organizations because you can really get burned out on some of the work that you’re doing with a non-profit. If you’re an executive director, you’re the founder of the non-profit, you have to set it up as a business. There’s just no two ways about it. You’re not going to survive if you don’t set it up like a business.

So, my main goal with this video is to give you three tips when you’re thinking about how to pay yourself, where does that money come from, and what to do with it. When you’re thinking about your budget think of a percentage that you want to take out for your non-profit. As an example, in my non-profit we sponsor kids. And so, for every child that gets sponsored, we take out a 10% fee because I have to do that work. My staff or anyone else that works with me has to do that work. And so, somehow I have to be able to keep that talent, I have to be able to have people who are willing to work with me to do that. And yes, I have interns and I would absolutely have volunteers before I would have someone that I also have to pay, but right now what I do with that 10% that is for my administration fee, I put that money back into my non-profit. I personally don’t need to be paid at this point, and I want to see my non-profit thrive. And so, you have to make those decisions.

I think it’s easier to not get burned out with your non-profit, and your responsibilities when you know that you can see it moving forward. As an example, right now we are revamping our website and that’s something that is actually very important to me. It’s the whole basis of how my non-profit runs, and so rather than pay myself I rather take those funds out to actually make the website better. And so, that’s the number one goal for me. You have to figure out for yourself, what’s the number one goal for you, and your admin fees, and your costs that you’re taking out of your non-profit and taking away from the social impact, is it enough for you that you need to be paid? If this is your full-time job then yes, you need to be paid enough so that you can take care of your family and so that you can also take care of the business.

Where people get in trouble here is that they focus too much on paying themselves and they’re not being transparent with their supporters on where those funds are going. When you go to create your yearly report and people look at your funds, you shouldn’t be having 70% of the funds going to you and only 30% going to your project, or your services, or programs. You have to figure out what you’re comfortable telling your supporters that you take out for your admin costs, and where those admin costs go. It should be very simple for people to understand that, yeah okay she takes out 30% of all donations that come into her program and she puts them toward admin costs, and this is the breakdown of those admin costs. You should be just fine explaining to people where those funds are going, and how they’re being used, and showing that your salary is reasonable for the level of work that you do.

So what profit means to me and the non-profit sector or the social entrepreneurship world and The SociaLife World, basically means that you have enough to take care of your programs and services but you’re also taking out admin fees for you to actually do the job, put back into your business just like any other for-profit business would do. And my goal with The SociaLife is to say that you can still be giving social impact as long as you are showing your supporters where your funds are going, and you’re being transparent with that, and you’re showing them exactly what that looks like, then you absolutely could be making a salary from your non-profit, it is not a bad thing.

I don’t know how else to say this, and I feel like I’m a little bit on a rant, but it is important to take care of the founder and it is important to put money back into your non-profit so that your non-profit can be successful, so that you can attract the talent that you need to provide good services and good customer support for your recipients of your non-profit. If you look at big non-profits they absolutely have a budget for their administration, they have salaries for their executive directors, they have salaries for the staff that work for them, you have got to have those things in order for your non-profit to work.

So, I don’t want to split hairs on what profit actually means, and whatever, but for my purposes in The Social Life and when I use that term profit means that this is money that you are not putting towards programs or services to run your non-profit, these are the administrative costs that you need to make the non-profit run. And a lot of people forget that there is someone behind this non-profit making it run, keeping track of things, and you have to value what you do as a non-profit executive director or founder. And you have to value the work that you put in and write out what you believe that’s worth.

And if you have a board this is a great place for them to tell you if it’s reasonable or unreasonable, because they are deciding your salary. You’re not just coming up with your salary just out of the blue or taking funds from your non-profit to pay yourself, this is something that has to be voted on, this is something that has to be decided with your board, this is something that you have to recuse yourself from if you are sitting on your board as a board member, because you are deciding on your salary and so, you have to recuse yourself from those meetings and let your board decide what your salary should be based on all of the information that you’ve given them. Maybe you’ve given them a job description of what you do, you’ve done some research on benchmarking on what other people who do the seam type of work that you do get paid. So, if you’re doing more administrative assistant type of work then you should be benchmarking with an administrative assistant in the for-profit sector. If you do more of the heavy lifting and you do the everyday work write out that job description and then find another job description or two or three that are doing the same thing so that people can compare the salaries to see where your specific job description works.

Now, sometimes you have to remember that you’re in the non-profit sector and even though I believe that you should be getting paid what you’re worth, you may take a lower salary than someone who’s working in the for-profit sector so that more of your funds can go into your program. But these are things that you have to keep in mind. You are working and you are doing a job, and you are running a business. And in order to make that business work, you have to put money back into your business, your non-profit, whatever it is. So absolutely you should be taking a salary when you can, and when it makes sense, and you have to be able to stand behind what you’re taking out of your programs so that you can pay yourself. You have to stand behind that when it comes to supporters, you have to be able to show that your board was on board with this, you have to show that … no pun intended there. You have to show that your board approved this and that you have now taken out a salary, and you are now getting paid from your non-profit. But there is absolutely nothing wrong with that.

Synthesis and Tony X these are the types of things that you want to think about. So number …

You want to think about how much you’re taking, what percentage you think is fair to present to your supporters that you are taking out for your admin costs. You want to be open and upfront about what you’re taking from your non-profit to pay yourself. And you should feel comfortable being open and upfront about this when you’ve done all of your research and you know this is what you are worth. And really it does come down to, this is what you’re worth. And just like any other for-profit business, you may not take a salary for quite some time. There are tons of for-profit businesses that don’t take a salary for a couple of years because they’re putting their money back into their business.

Now when you decide to make that shift from, “I’m no longer putting this money into my business, and now I have my business where I want it and I want to start paying myself and taking a salary,” that is the same trajectory that a for-profit business would take. And I keep saying that and comparing it to a for-profit because I don’t want you to feel bad about taking out a salary, this is completely normal and most non-profits that’s what they do. That’s how they hire good executive directors, and they hire good talent. They have to pay their executive directors. So you need to go back and pencil out, how much would I need to make in a year to be able to take out a salary or pay my staff or whatever I need to do? And that ownness is on you. You have to then go out and be able to find those funds to be able to pay for that through your program. So maybe you need to get three $10,000 grants so you can make $30,000 a year for your program, and maybe you take out a percentage of that where you make a certain amount per month. And that’s just going through and doing the numbers, just like any other business.

The last thing I would say is the most important part of those three things that you need to keep in mind, is the reporting. You need to make sure that if you do start taking out a salary, the reporting is more important than ever before. When you’re just working on your mission and you’re putting funds back in reporting is always important, but it becomes even more so important and you become under more scrutiny when now you’re taking out funds to be the executive director or for the founder, where you now need to show that yes, we are completing all of these programs and services. Here’s where that money has gone. Here’s what I take out as a salary, and that’s a percentage of what percentage that is of the funds that come into your program.

So, there are a few things you need to think about before you do start taking out a salary, but I absolutely believe that you should always be looking towards taking out a salary. Now, we all come to that in different phases. For example like I said, I don’t get paid for my non-profit and I’m okay with that. I like what I do, I love what I do, and I put the funds that do come in that I could take out as a salary, I put those back into my business. As far as doing the website, taking out ads, creating events, doing things that I feel further the non-profit, and the things that are important to me, rather than putting those funds in my pocket right now.

At some point maybe later I may hire an executive director, and I may want that. Of course, I’ll need to pay them if I hire them, or I will take on the role of executive director myself and I will pay myself. But, this is not a shotgun approach, you really need to take your time. You need to do research on how much you need to get paid. You need to do research on how much money you need to bring in, in order to substantiate the amount that you want to be paid. So those are the types of things that you need to look into when you’re thinking about creating a salary for yourself as a non-profit founder or executive director.

So, I know that was a long winded video. I feel like I actually kind of went on a little bit of a rant, but I don’t want people out there thinking that when you go into the social sector, or you create a non-profit, or you create a social enterprise that you can’t pay yourself. It’s just not true, and it’s been a long time of people thinking that way. But I believe that you should run your non-profit as a business, and have a business mindset, and be savvy about what you’re doing with your non-profit in order to make it grow and increase your social impact.

So, I hope that helped you. I will see you guys on Thursday and I want you to get out there and unleash your something amazing. Thank you so much for watching, I’ll see you on Thursday.

How to start your own nonprofit in 7 steps!

Hey Socialife Peeps!

Today I’m going to be talking to you about how to start your own nonprofit.

If you’ve got a big idea and you know that,  you think it can change the world, and you want to dive into the nonprofit sector, today I’m going to give you seven tips on how to do that efficiently and quickly. I’m going to help  you avoid searching around, trying to figure out exactly how to get through this legal process.

I will say that I am not a lawyer, and I cannot advise you on how to go through the legal process. But, I do have some resources that I’d like to share with you, and the process that I took so that you can see that the process isn’t as daunting as it may seem. It is just like starting a business, but because you are dealing directly with the IRS, and it is a 501, or you’re trying to get your 501 C3 status, you have to make sure that you do everything correctly, and dot your I’s, cross your T’s, make sure you have all of that done. Today, that’s what we’re going to be talking about. Let’s jump right in.

The first thing you want to do when you’re starting a nonprofit, is you want to think about your name, your mission, your vision.

Things that you have probably already started dreaming up, and thinking about, and your processes, things like that. You want to think about the services you’ll be providing to your demographic. One of the most important things that you’re going to want to work on, is whether you’re a membership organization, or a non membership organization. Because, there will be a bifurcation at some point during the process, that you’ll have to decide whether you’re a membership, or non membership. It’ll depend on some of the forms that you fill out. Because we are a non membership based nonprofit, that’s what I’ll be talking about today, and that process.

Next thing is, you need to get your name. That’s number one. Your name obviously is very important.

You may have already thought of a name, but now you need to make sure that, that name is available. The way to do that is you’re going to check at IRS.Gov, and you’re going to go to their search tool. They have a name search tool. Once you do that you’re going to put in your name, they’re going to send you … You’re going to need to reserve that name first. Then, that name isn’t yours. It’s just reserved. That means that they are going to send you an inquiry back. Once you get that inquiry letter and you publish that name, and you let them know that it’s published, that means that your name has been reserved. That means that now it is officially your name. They will send you a letter to let you know that whole process, and they’ll tell you all of that on IRS.Gov, what the actual process is.

But, until they say that the name is actually yours, that name is only reserved. Then, once you receive the final confirmation on that name, you will need to publish that in three different papers. What I did is I just published it in three different counties, and then that makes it official. Essentially that’s saying, “I’m starting this business. This is officially my name. It has been published under my name associated with my business.” That’s what you’ll need to do. I think that probably costs about, it’s probably about $25 I think per paper, to publish it. Basically, that’s just proof that you are actually using the name for a business. That’s your first step.

Your second step is your articles of incorporation.

Your articles of incorporation, they seem a little daunting but really it’s actually a very simple process. If you pick up the Nolo Resource Book on how to start a nonprofit, that is a … It’s written by a lawyer, and it’s a resource that will actually walk you through the entire process step by step. I do recommend getting that for any nonprofits that are getting started, because it will save on time as far as using a lawyer, and then on top of that it will also save on you making any sort of mistakes, because it walks you through step by step.

When you’re doing your articles of incorporation, the first thing I would say is before you start your articles of incorporation, or at least before you send them in, you’re going to want to create your bylaws first. Even though that’s not my second step, this is something that I would actually just recommend to you. Because, once you finish the articles of incorporation, that process goes a lot quicker than you think. Or, it can go a lot faster. You don’t want your bylaws to be what slows you down. I will get there in just a minute. But, basically you’re going to want to do your articles of incorporation. This is essentially the same thing for everyone. Even though it seems like there’s a lot to do, it’s really just nine articles that you’re taking, and you’re inputting your information. But, they give you essentially the word for word that you need to use for each article. So, that makes it pretty simple for you to do.

You’re going to do that. Now, when you send in your articles of incorporation you’re going to need to send in your cover letter as well. That cover letter is $30. Then, you’re going to need to get that certified copy back. If you send it in and you don’t use the cover letter, and you don’t use the requested certified copy, you’ll need that certified copy later in the process, so you need to make sure you do that. It’s a total of$35,  five dollars for the copy, $30 to actually send it in, and have it filed and everything. You just need to make sure you have that cover letter, which is also in the Nolo Resource Book. Essentially, it’s a plugin situation where you just plugin your name, and plugin your services, and all of your own personal information. Print that up, add it to your articles of incorporation, and send that in. Send it into the secretary of state.

That takes, they say it takes about two to four weeks. I received mine back in two weeks, and the process went pretty quickly for me. That’s articles of incorporation, that’s step number two. You need to make sure that before you actually send that in, that you start your bylaws first, and you’ll want to at least start to tackle your tax exemption, 1023-EZ Form. Which, will be probably the most tedious part of the whole process. That’s step number two.

For step number three, you’re going to start working on your bylaws.

I will not lie to you, the bylaws are time consuming. I won’t say they’re hard. They’re not necessarily difficult, it’s just time consuming. This is really where you’ll see your whole organization really come together as a nonprofit, and it’ll start to be outlined because they’ll be asking you about who’s on your board, and you’ll need all their information, so you’ll need to have your board developed already. You’ll need to know your purpose, which is generally your services and your mission. What are you trying to do with your organization? Then you’ll need to know the type of corporation that you’re going to be. You’ll know that from when you incorporate and all of that, you’ll know what type of corporation you’ll want to be.

Then, you’ll need to have regular meetings schedule, and also your annual meetings schedule. So, how often are you going to meet, when are those meeting dates going to be, and this is a rough outline. Obviously if things don’t work out, and you … We use the second Tuesday of every month. But, sometimes we have to move those around according to the boards schedule. But, they need to know that you have a regular meeting schedule. If you’re going to do quarterly meetings, you’re going to do weekly meetings, monthly meetings, yearly meetings. However often you’re going to be meeting for your board, you’ll need to have all of that figured out so that you can add all of that information into your bylaws.

Then, your annual meeting date. When are you going to meet once per year? Then you’ll also need to figure out your fiscal, or calendar … Are you fiscal or calendar, your scheduling? What kind of calendar year are you going to be on, fiscal or a calendar year? Then lastly, and you have probably already decided this, are you going to be membership or non membership? Because, the bylaws is where the bifurcation comes from. They’ll have different types of bylaws that you’ll need to fill out if you’re a membership based nonprofit, as opposed to a non membership based nonprofit. I believe the non membership is a little bit easier. But, if people are going to be paying into a membership to be part of your nonprofit, or you’re going to have a membership base, then you need to obviously use the membership side of the bylaws.

Those are really the bulk of the information that you would need for your bylaws. But, really this is just a time where it’s a kind of tedious process, and you just need to be more meticulous about what you’re writing, and what you’re saying. Because, once your bylaws are created, it will take the board’s decision, and the board vote to change those bylaws, which is why most bylaws aren’t generally changed in organizations, because that’s what they’ve been running off of for the last however many years they’ve been around. This is kind of a big deal. It will take some thought, which is why I said to complete this, or at least be starting this process before you do your articles of incorporation, or before you send them in. Because, your articles of incorporation will actually be pretty simple. But, your bylaws are going to take a lot more time.

Once you complete your bylaws, that would be the end of step three.

Now, step four is your EIN number. You’ll be using this number, your Employee Identification Number.

You’ll be using that number for quite a few things. When you fill out information, when you’re applying for grants, when you’re just doing things that involve your nonprofit, they will ask you for this EIN number, and also your tax exempt number. These are two numbers that you’ll need to keep track of, and know where they are. You’ll need easy reference to them. This is probably one of the simplest steps out of the whole thing. You’re just basically going to go to IRS.Gov, you’re going to look up the SS-4 Form online, and you’re going to feel that out. The big thing is, with all of these things you’re going to need to print them out, and make a copy for yourself so that you can have them in your corporate records book.

That’s one of the things that you’ll need throughout this whole process, is you’ll need a corporate records book where you can just keep all of this information, just keep it filed and make it so that you have easy reference to it so that if someone else were to come in and take over your organization, they would know where all of this information is that they would need to keep referring to. It’s very important that you have a corporate records book, just so that you have access to all of these important documents. It’s also a requirement of the IRS as well, so you’ll need to set that up.

You’re just going to make sure that you fill out this form, make sure you print it out, and then keep it in your corporate records book. It is absolutely immediately, it’s an immediate response. You fill out the form, you press submit, and then they give you an EIN number. That’s the form you need to fill out … I mean, print out, I’m sorry. You need to print that form out, put it in your corporate records book, and then you’re done with that section.

Step five is, the 1023-EZ. This is where most people can really mess up, or delay the process of becoming a tax exempt status.

This is where you have to pay the most attention, and you have to really have a lot of attention to detail. It’s just a tedious form, it’s a long form. After you complete your bylaws, this form has to be turned in within 27 months. That may seem like a long time, but when you’re in the midst of running your nonprofit, and you have to fill this form out, I would recommend that it’s just better just to do the whole process all at once. Which, is why I say before you send in your bylaws, or your articles of incorporation. Before you start the whole process, you’ll want to just send this whole thing in, and get it done. Just do it all at one time. Take two days, and finish the entire thing.

Because, this 1023 EZ will take some time, and just some focus. That’s really all it comes down to, is you just need to focus on it, and you’ll need to know that it’s going to be tedious, and that you’re going to have pay attention, and I would just plan to not do anything else for that four hour block of the day, and just get that done so that you can send it in, and then it’s out of your hair, and you don’t have to remember within 27 months to send this in. But, if your organization is not completely set up and ready to rock, then you do have 27 months to do that. That’s step 5.

 

Now we’ll move onto step number six, which is creating a packet for the IRS for you to send in, and then they will look over it, and that’s how you’ll receive your tax exempt status.

In this packet you’re going to have a certified copy of your articles of incorporation. You’re going to have signatures from your board. You’re going to have your bylaws. Then, you’re going to have copies for yourself of all of these things, because you may not get these back. Then you’re going to fill out a checklist that comes with, that goes with this form once you send in … I believe it comes with the 1023-EZ. But, you’ll need to make sure that you have this checklist for the very front of this whole packet. Then, add it to the front, and then send it in.

They say it could take up to, I want to say maybe eight months or so. It seemed like it was going to take a long time, but I actually received mien back in three months. I sent it in, in March, and I think I got it back in June or July. Then, once I received it back it said that my tax exempt status was actually retroactive for a year. I’m sorry, retroactive from the start of the year, so from January. I don’t know if that’s how it works, but it was retroactive to the first of the year.

That meant that all of the income that I received from that time, any donations or anything that came in from that time period, from January to June, would be considered tax exempt under my tax exempt status. I wouldn’t depend on that, but just be aware that, that is a possibility, and that’s how my process worked for me.

The last thing is, you’re going to receive your federal tax exemption.

Woo-hoo. They’re going to send you a letter, and basically you need to make sure on that letter that it does call you a nonprofit, and not a foundation. You just need to make sure that’s clear. Then, they’re going to let you know whether you need to fill out a 990-EZ form every year, and basically you’ll fill it out online, they’ll send you a postcard, and then you’ll be filling one out every year, or two there on for your nonprofit.

That’s essentially the whole process on how I started my nonprofit, and how you can start yours too. The main resource that I would say is most important is the Nolo Resource, and I will make sure I have that in the link below.

If this post did help you, please be sure to like and subscribe to our channel.

5 ways to advertise for board members! #RealTalk Q+A

First things first! You all know I always think you should directly ask someone to become a director for your board! It’s a big responsibility and you don’t just want anyone on your board! These will be the people guiding your organization for the next few years! Trust is a key piece of this equation!

In today’s video, I’m leaving you with a few ways that I would recommend to get started advertising for your new startup board of directors!

Before you even begin advertising, you’ll want to first get very clear about your ideal board member. What qualities and expertise you’d like to have and even need? What does the perfect board consist of and contribute to the mission and vision of the organization?

Tip #1: Advertise on volunteer matching sites:

This ensures some level of vetting and interest  from the volunteer. A great one to start with is Volunteer Match! Super easy, just type in your zip code and the area of interest  and  they pop out a list for you!

Tip #2: Use your newsletter:

Need I say more! If you’ve been watching my channel very long, you know that I say to leverage the newsletter all the time! This is a great place to announce that you are looking for new board members! In addition, you already know that these people already have a vested interest in your organization and your mission.

Tip #3: Clients who receive your services:

What better group to choose from to help guide your organization’s purpose and mission than the people who have personally been affected by it and want to support! Depending on the type of organization you run, this might be a great way to continue the connection to your recipients and give them a way to pay it forward!

Tip #4: Create advisory roles:

An advisory board is a great way to include people who want to be apart of your organization but may not have the time to commit to a board level position.

Tip # 5: Your Website

Remember that wish list I told you to create before you got started? Add that to your website so that you can always refer anyone interested to that page if they want to support your organization

When I was looking for my board members, I created a presentation of my startup nonprofit, invited my friends, family and others that supported the idea to attend. At the end of the presentation I asked if anyone was interested in sitting on the board, along with the requirements and expectations of the board! This was by far one of the best ways to connect people to my organization.!

These are my five best tips to advertise for your nonprofit board of directors! Now get out there and unleash your something amazing~

Interested in signing up for my course to help you start your nonprofit? We take you step by step so you don’t miss a thing!

Click here to sign up-http://bit.ly/Unleashedcourse

Be sure to sign up for the Socialife Diaries: http://bit.ly/2BDsQgR  to get all of the upcoming times for my next live trainings, to email me directly, receive weekly advice AND join other entrepreneurs with a purpose in our Socialife Tribe FB group (the link will be sent after signing up).

Or just connect with me on social, you can find me at @socialifediaries!! Thanks so much for watching!

Let’s Unleash YOU!

 

Should you start a nonprofit or a foundation?

Hey Socialife Tribe!

If you’ve ever considered starting a foundation or a nonprofit but aren’t sure which one you should start.  This is the video for you!

One thing to keep in mind is that all charities are nonprofits even foundations but all nonprofits are not charities. The reason this is important is because some nonprofits are not created for public benefit but all charities (in order to be deemed a charity) must be for public benefit.

Often times if your for purpose organization does not qualify as public benefit some organizations will go the foundation route.

If you are considering some of the main differences or just to get a better understanding of what a foundation is and whether or not you should list yourself as one or even use it in the name, here you go! If you’re considering starting your own nonprofit check out my 7 steps here.

The main points

  1. Foundations are typically funded by individuals or corporations.
  2. Foundations are required to pay out 5% of their net assets from the previous year.
  3. Foundations can run charitable programs w/o setting up a nonprofit.
  4. Foundations can set up scholarships and award programs and choose the recipients.
  5. Foundations provide funds to for profit companies as long as they are used for charitable purposes.
  6. Foundations and nonprofits must go through the same process to get started.
  7. The word foundation has no legal meaning

There are two types of Foundations: Operating and Non-operating.

  1. Private Non-Operating Foundations: 
  • most common foundations (Bill and Melinda Gates, Large corporations)
  • do not directly perform services or programs
  • provides grants to other nonprofits

2. Private Operating Foundations

  • distinguishes its funds to its own programs or services for charitable purposes
  • can provide grants to other nonprofits
  • can be run very similar to a nonprofit

Requirements

  • All Foundations are required to distribute about 5% of their net assets from the previous year.
  • Cannot do business with major contributors

 

 

Sources: https://cullinanelaw.com/difference-between-public-charity-and-private-foundation/