A new program or group practice should be incorporated to help protect against personal liability issues. It also helps to separate personal funds, property and related items from that of the new entity. When determining the type of incorporation, it is recommended that counselors consult a tax specialist and an attorney who specializes in business law. The following is provided for informational purposes only.
501(c)(3) not-for-profits (which I’ll refer to as nonprofits from here on out for ease of reading) may be the choice for a practice whose mission is to provide services for the public benefit. Examples of public benefit for clinical practice may include providing free or sliding scale services to those in need; in other words, without a focus on making full-market value for services rendered. It may also be the choice for those who plan on providing free or low-cost public seminars or trainings or for those who plan to specialize on outreach or other types of support to the community. Nonprofits tend to focus on supplying services to those in need, as opposed to the for-profit focus of providing goods or services at a healthy mark up, with profits being the main driving force.
Counselor practitioners interested in this type of corporation should note that a tax-exempt nonprofit is not owned by any one person; it is an entity that owns itself and is governed by a board of directors. In the case of the charity that I founded, although I have poured tens of thousands of dollars into it and have donated many items, I do not own it and, as such, I can expect to make no profit from selling anything once I decide to quit or retire (beyond any retirement or compensation that the board of directors may offer). Profits, if any, are not divided among partners. Likewise, it cannot be sold and the proceeds divided among the partners. In fact, there are no partners. Instead, there is only a board of directors that receives no compensation (in most cases). This is not a good selection for those intending to build a practice for profit or future sale.
An advantage of nonprofits is that they are tax exempt as a corporation (any personal income of employees is still subject to income tax and other related taxes). Nonprofits can also receive grants and tax-deductible financial contributions. Should a nonprofit close its operations, property and other assets are generally donated to another nonprofit.
As a direct result of grants, Pillwillop Therapeutic Farm has been able to:
- Build a wheelchair ramp to its main building
- Buy thousands of dollars’ worth of art supplies for therapeutic art programs
- Build a seasonal high tunnel (greenhouse) that is 72 feet long and 30 feet wide
- Partially pay for a new well and irrigation system
We will also be building an additional seasonal high tunnel that is 92 feet by 30 feet and have just received a $10,000 grant to help improve our community garden programs. A for-profit company would not have been eligible for these funds.
Pillwillop Therapeutic Farm has also had many goods and services donated to it, including furniture, desks, electrical and plumbing work, carpentry and mechanical services. In addition, volunteer labor has saved the charity tens of thousands of dollars over the years and continues to be an important component of its day-to-day operations.
There are downsides to developing a charity. As I mentioned previously, you do not own a charity — it owns itself. Therefore, you will not personally profit financially from building a charity, other than whatever pay you may collect from your position. You also will typically earn less and have fewer quality health and vacation benefits in comparison with similar-sized for-profit corporations. You really need to explore these considerations (and others) fully before setting your sights on “saving the world” by starting your own nonprofit.
It should be noted that not all nonprofit corporations will be exempt from tax liabilities. It is important to know the different types of nonprofit corporations and the requirements of 501(c)(3) not-for-profit corporations before starting the journey. I recommend consultation with a business lawyer and a certified public accountant with knowledge specific to nonprofits, not only at the founding of your charity but throughout its life.
When choosing to start a charity, it is important to have an overabundance of passion, but the need for knowledge and a solid business plan is paramount. In the next column, we will focus on developing a solid plan for your nonprofit and explore some of the many steps involved, such as developing bylaws and registering your nonprofit.
Founding and running a nonprofit is a ton of work. It can be stressful, but it is also often rewarding. For many of us, the knowledge that we are making an impact on our communities more than makes up for any potential loss of income that we might experience. For those who find no such pleasure in that thought, there are many other alternatives.
This information is presented for educational purposes only. For specific legal advice, please consult your own local attorney.
“Doc Warren” Corson III is a counselor, educator, writer and the founder, developer, and clinical and executive director of Community Counseling of Central Connecticut Inc. (docwarren.org) and Pillwillop Therapeutic Farm (pillwillop.org). Contact him at firstname.lastname@example.org, particularly to let him know which topics you’d like future articles to cover.
Read Doc Warren’s debut column from last month here.