Starting and Managing a Nonprofit Organization: A Legal Guide

By Bruce R. Hopkins | Go to book overview

CHAPTER TWO
Starting a Nonprofit Organization

Being enthusiastic, imaginative, and creative about establishing a nonprofit organization is one thing. Actually forming the entity and making it operational is quite another matter.

For better or worse, this exercise is much like establishing one’s own for-profit business. It is a big and important undertaking, and it should be done carefully and properly. The label nonprofit does not mean “no planning.” Forming a nonprofit organization is as serious as starting up a commercial company.

It is important when setting up an organization to remember that in some instances, the same activity or activities may be undertaken in a for-profit or nonprofit organization. Other considerations come into play as well, such as whether the motive for starting the organization is profit (so that money can be taken out as dividends or money can be made when the stock is sold). In a rare instance, the choice of entity may be dictated by the realities of initial financing. (In an example of the latter, some individuals in New York City decided to establish a Museum of Sex. The original plan was that the museum would be nonprofit but the initial funding could not be obtained because prospective donors and private foundations were leery of the concept. So, the founders attracted capital and made it a for-profit museum.)

Many nonprofit organizations are started on a shoestring; the individuals involved undertake tasks they would never do if they were starting a commercial enterprise. One of the reasons is a widespread nonprofit mentality—a belief that because the undertaking is nonprofit, it need not pay for services rendered. Encumbered with this view, the sponsors of the organization will, in abundant good faith and with the best of intentions seek—or even expect—free assistance. Sometimes, this attitude carries over to the acquisition of equipment and supplies.

In some instances, this nonprofit mentality is wonderful. It enables a skilled manager to parlay a horde of earnest volunteers into a magnificent service-providing organization. Truly skilled managers are rare, however, and anyone considering organizing and operating a nonprofit organization is well advised not to skimp on hiring three consultants: a lawyer, an accountant, and a fundraiser. The professional services of these individuals are crucial. The old adage, “You get what you pay for,” is amply applicable here.


AN ILLUSTRATION: A NEW ORGANIZATION

Let’s reduce the role of nonprofit organizations to a more practical level. What problems in society trouble you? How would you solve these problems if:

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