The Pollinator Stewardship Council
Why Do You Want To Become A Nonprofit?
by Michele Colopy
If your beekeeping group is considering becoming a nonprofit; first and foremost ask yourselves “why?” Far too often, individuals start a nonprofit when they should really collaborate with another group that is already a nonprofit, such as their state beekeeping association, or a local Friends of the Park group, or similar. Grant funders encourage collaborative programs and projects. Public and private foundations began funding legal clinics and State Councils of Nonprofits to guide new nonprofits.
If you think your bee club could do great things in your community if you became a nonprofit; the first question you and your bee club Board of Directors should ask yourselves is why do you want to become a nonprofit?
Are you starting your own nonprofit due to “differences of opinion” with another bee club, or other local group with whom you work? This is the wrong reason to start a nonprofit, as typically missions of your club and your “adversary” will be similar. Funders will be confused by two organizations with similar missions, and probably will not fund either group. Funders will expect the two groups to work out their differences, and combine into one organization.
Are you starting a nonprofit because one donor said they would like to give a big donation, but they want a tax deduction? You can use a current nonprofit with a similar mission to accept that donation for your club. The actual nonprofit provides the tax deduction for the donor, and acts as fiscal agent for the bee club that is not a nonprofit, but who is the beneficiary of the donation.
Does the club have ideas for community projects that would benefit from grant funding? Could these projects be collaborations with current local nonprofits or the State Beekeeping Association? If the projects lend themselves to collaborations (and most projects do), find a collaborator who is already a nonprofit, and work with them as a fiscal agent, first.
Utilizing a fiscal agent gives a bee club the chance to learn what the grant application, funding, and management is all about without having to actually be a nonprofit – your collaborative group is the nonprofit. Working with a nonprofit who serves as your fiscal agent is a good way to experience the grant process. However, understand fiscal agents do not work for free. If another nonprofit is managing your funds, and is responsible for grant accounting, they need to be compensated for their work. The typical fiscal agent fee is 10%.
Some organizations may request a higher percentage based on the intricacies of the grant project management. Some nonprofits may refuse to be a fiscal agent for monies less than $2,000. While, some fiscal agents with very large development departments, i.e. universities, may charge a 40-65% administrative fee (fiscal agent fee) for managing a collaborative partners’ donations. That administrative fee comes directly out of your grant funds.
Can the bee club afford grant funded projects? One grant never provides all of the funds for a project. Foundations and donors expect the nonprofit to contribute typically half of the cost of the project or program? Nonprofits then must seek additional grant funds to truly secure all of the funds for a project. It is standard practice to seek three times the amount of grant funds needed, as grant competition, and limited funding will simply reduce funding opportunities.
Does the club have many motivated members willing to work on and support the activities of the grant funded project(s)? If you are the only one with the idea, and you cannot elicit support from fellow club members, this will be your biggest issue. Grant funded projects take many hands to accomplish any grant funded program.
Does the club have leadership willing to accept the responsibility of filing the necessary nonprofit documentation and annual reports? If you do not have the volunteers to maintain and file reports, does the club have the money to pay someone to file the reports? How much will it cost to pay someone to file the reports, and manage grant funded projects? The Treasurer and President are responsible for filing the necessary annual reports to maintain nonprofit status.
Policies and procedures need to be developed to manage the grant funds, and grant funded projects. Grant funded projects and their accompanying application, reports, and accounting records can be public record (depending on the funding source), and the grant contract language.
Nonprofit beekeeping organizations offer opportunities to secure grant funds for bee club projects, but being a nonprofit comes with many accounting and reporting requirements. Nonprofit, or tax exempt organizations allow donations to it to be tax deductible for the donor. Funders will contribute program/project support as the program/project is “for the greater good,” not to the benefit of a single individual.
Nonprofits do not pay income tax on total donations received. Unrelated business income is another issue, where a nonprofit may have to pay income taxes (www.irs.gov/Charities-&-Non-Profits/Unrelated-Business-Income-Tax).
If a nonprofit has employees, the nonprofit must pay payroll taxes at the federal, state, and local level (www.irs.gov/Charities-&-Non-Profits/Employment-Taxes-for-Exempt-Organizations). No matter the business, large, small, or nonprofit, if taxes are not paid unpleasant actions will ensue.
The bee club, whether nonprofit or not, should have a separate checking account from any Board member, and opened under its own EIN. An EIN becomes the “social security number” for the bee club. To protect individual Board members, the membership and the club responsible actions must be taken with accounting, grant reporting, and most importantly management of grant and donor funds.
What kind of nonprofit do you want to be; which classification best describes what the bee club will be accomplishing as a nonprofit? What expertise exists in your club, including someone “expert” enough to know when to seek help, and where to seek help? Local university legal clinics and State Councils of Nonprofits are available to provide guidance to current nonprofits, and those groups pondering nonprofit application.
Are you considering becoming a nonprofit to protect the bee club’s Board of Directors from liability? Other options may be available to your bee club to protect the Board from liability and lawsuits. Consult an insurance agent for these concerns, who may then refer you to an attorney as well. While a bee club could “incorporate,” or become a “limited liability corporation,” the club’s mission and risk will determine what business entity it should create to secure a protected Board and club membership. In some states the State Beekeeping Association offers “affiliate programs,” or the State Bee Association is a nonprofit “business league,” wherein its member clubs come under the organizational umbrella of the State Association. Through this “business league” nonprofit the State Association secures the needed insurance, and nonprofit classification to protect its member clubs.
What does it cost to become a nonprofit? Cost to apply for IRS nonprofit status is $400 to $850 depending on average gross receipts of the association www.irs.gov/Charities-&-Non-Profits/Application-for-Recognition-of-Exemption and www.irs.gov/Charities-&-Non-Profits/Application-for-Recognition-of-Exemption. Cost to apply and register with your state will vary, but all nonprofits must register with IRS and with their state. Annual reports with applicable fees to your state must be completed. Attorneys will be happy to complete your nonprofit registration application for a cost of $2000-$4000. You do NOT need an attorney to complete your nonprofit registration application. This is not legal advice, just simply stating the IRS does not demand you have an attorney file the nonprofit application documents that are readily available to anyone on their website.
Not all nonprofits are the simple 501c3, as there are 33 classifications of nonprofits under “501c.” See this chart for the variety of nonprofit classifications www.guidestar.org/rxg/help/irs-subsection-codes.aspx. Tax exemptions vary per the classification, and the classification is determined by your mission as a nonprofit. Contact your state Council of Nonprofits for more information specific to your state about nonprofit development. www.councilofnonprofits.org/find-your-state-association.
If you are considering becoming a nonprofit, feel free to contact the Pollinator Stewardship Council as well. We assist our members with nonprofit development, helping you decide if you should or should not become a nonprofit. We also will be a fiscal agent for bee club members and pollinator partner members for your projects.
Next month this column will feature How to Start a Nonprofit Bee Club-Part II. Click here to go directly to Part II.
Michele Colopy is the Program Director for the Pollinator Stewardship Council. She holds a Master’s degree in Arts Administration/Nonprofit Management from The University of Akron, and has created, revitalized and held leadership roles in nonprofit organizations for 20 years.