Remember the upbeat song by Lesley Gore? This idea really resonates with nonprofits and the occasional “founder’s syndrome.”
A major misconception about nonprofit organizations concerns ownership of a nonprofit. No one person or group of people own a nonprofit organization.
Ownership is one of the major distinctions between a non-profit organization and a for-profit business. This distinction is reinforced by the Internal Revenue Service (IRS).
Non-profit organizations
A 501(c)(3) organization is a public charity and does not belong to the founder(s), the board, or the staff.
Nonprofit organizations do not have private owners and they do not issue stock or pay dividends. Any monies not spent by the end of the fiscal year are used to benefit or expand programs.
A nonprofit organization cannot be sold, but it can be dissolved. Any assets remaining after debts are paid must be transferred to another nonprofit with a similar mission.
For-profit businesses
There are four general types of for-profit businesses in the U.S.: a sole proprietorship, a Limited Liability Company (LLC), an S-Corporation, and a C-Corporation.
Dividends from profits can be distributed to shareholders and employees.
A for-profit business can be sold, and profits distributed to shareholders.
Founder’s Syndrome
Founder’s syndrome is not unique to the non-profit world, but we do seem to hear about this situation more often. When someone starts a non-profit organization, they naturally feel a certain amount of ownership. This nonprofit is “their baby” and they likely used their own money to serve a cause that’s dear to their heart.
The challenge is when the founder’s leadership stymies the growth of the organization. In the best of all worlds, a founder would have a secession plan in place long before it’s needed.
In both the non-profit and for-profit worlds, the founder can be voted off the board. I had a client who as the founder of a beloved nonprofit was shocked to be fired and marched out of the nonprofit’s office with no notice.
When a for-profit business owner is ready to leave or move on, they can sell the business. Not so, for a non-profit leader. If a non-profit organization has run its course or been mishandled or for another reason needs to shut its doors, there are IRS and state rules to follow to properly dissolve the organization.
Generally, the termination or dissolution of a charitable nonprofit corporation requires a vote to do so by the board of directors. They must then pay all debts, distribute any remaining assets to a charity with the same or similar charitable purpose according to a plan of distribution, file a form 990 with the IRS, and file a certificate of termination with the Texas Secretary of State.
Overall, nonprofits aren’t designed to be owned, even if a founder feels really connected to the organization. Nonprofit organizations and charities, have a unique place in our society, to serve those in need, not to make a profit or be owned.
Cheers,
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.