How to Start a Company: Part 2

By Sims, Caitlin | Dance Teacher, November 2005 | Go to article overview

How to Start a Company: Part 2


Sims, Caitlin, Dance Teacher


In Part 2 of our series on starting a dance troupe, we ask (and answer) the tricky questions: What are the pros and cons of being a nonprofit, and the logistics of becoming one?

Few people start a dance company with dollar signs in their eyes. Only the extraordinarily talented and extremely lucky few gain widespread fame or glory, and even then, financial rewards are elusive. For the vast majority, the value of a company is more ephemeral-it's hard to put a dollar value on the importance of an artistic outlet or the pleasure of working with gifted collaborators.

Because of the economic realities of running a concert dance troupe (expenses are high, funding and revenue low), most are run as nonprofit organizations, meaning they meet the requirements of section 501(c)(3) of the Internal Revenue Code. As a result, nonprofits are often referred to as 501(e)(3)s. (One rare for-profit company in the U.S. is Momix, the modern-dance offshoot of the wildly popular Pilobolus, itself a nonprofit. )

Although there are distinct benefits to nonprofit status, it is not the right solution for all dance companies. How do you determine if, when and how you should incorporate as a nonprofit? The complicated answer depends on a variety of factors, including your company's revenue, established infrastructure-and future goals.

The Nonprofit Pros

The benefits of nonprofit status are straightforward. A nonprofit company is exempt from taxes, including income tax and some sales and real-estate taxes, and is eligible for special postal rates. Nonprofits can apply for grants from the local, state and federal government and foundations, the bulk of which only offer money to nonprofit organizations, and can receive donations that are taxdeductible from individuals. Reduced rates in theater rental and advertising, among other benefits, sweeten the deal.

"When you compare the amount of money it costs to rent a theater and pay for lighting, costumes and advertising to the amount of seats that a small theater has-keeping in mind that you can't charge $50 a seat in a small theater-you realize it's almost impossible to make money," says Jennifer Weber of Decadence Theater, a hip-hop company in New York City that is in the midst of applying for nonprofit status.

Randy Swartz, artistic director of Dance Affiliates and president of Stagestep in Philadelphia, agrees: "Unless you have an immensely popular group instantly, you're going to be hard pressed to match box office to expenses." In addition, the formation of a nonprofit corporation provides protection for the company's members and directors from personal liability, should the company face a lawsuit or insolvency.

With the break-even point for performances more and more difficult to reach, the reduction in the tax burden and increase in potential income make applying to become a nonprofit corporation seem like a nobrainer for dance companies.

The Nonprofit Cons

But the decision is anything but simple. "You have to have a certain amount of infrastructure once you're a 501(c)(3), and you need to make sure that you can support that infrastructure," advises Barbara Bryan, who manages a number of small dance companies, including John Jasperse Company, Tere O'Connor Dance, Wally Cardona Quartet and the choreographer Sarah Michelson. "You have to form a board of directors and hold quarterly board meetings, which becomes increasingly complicated as the board grows. You have to put employees on payroll, which involves paying for unemployment insurance as well as disability and workers compensation insurance."

Although the definition of the employer/employee relationship doesn't change with nonprofit status, many dance companies find that once they are official nonprofit corporations, they are "on the radar" of the Internal Revenue Service, and the increased level of scrutiny of their operations forces them to get all their financials in compliance. …

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