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Non-Profits & Profitsareyougoingtosucceed.com

How They Work Together



Definition of a Non-ProfitAn incorporated organization which exists for educational or charitable reasons, and from which its shareholders or trustees do not benefit financially

Incorporated Shareholders Trustees Benefit Financially

Registered with State

Board of Directors

Pres., Vice Pres., Sec., Treasurer

Benefit by Association



Definition of a Profit BusinessA financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business.

Incorporated Shareholders Trustees Benefit Financially

Registered with State

Owners C.E.O, C.F.O, C.O.O Can Benefit Financially



What is the Hybrid Model

A nonprofit and a for-profit are linked. In some cases, one is a subsidiary of the other; in others, the two entities are bound by long-term contracts in which one entity fulfills a basic need for the other and vice versa.



Classic Example of A Hybrid Model

In 2005, the nonprofit Mozilla Foundation formed a for-profit subsidiary, Mozilla Corporation, to handle the explosive growth of the Firefox Web browser. Now, the for-profit makes about $104 million a year from revenue-sharing agreements with its search partners, including companies such as Google and Yahoo.



Classic Example of A Hybrid Model

Meanwhile, the Mozilla Foundation, which is the corporation's sole shareholder, handles the development of the open-source software and brings in just over $222,000 in charitable donations.



Classic Example of A Hybrid ModelStory Pirates was founded in 2003 by a group of Northwestern grads, this New York City– and Los Angeles–based nonprofit provides after-school writing and drama programs to underserved schools and produces stage shows for the public. To accommodate growing ticket sales, Story Pirates founded a for-profit of the same name. The two organizations are linked through licensing agreements that allow them to share their name and content.



Classic Example of A Hybrid ModelThe for-profit Parent Earth Inc. and the nonprofit Parent Earth Foundation have the same mission—to educate the public about healthy eating habits—but they perform different duties. From offices in New York City, the nonprofit produces educational videos about food, while the for-profit generates advertising revenue on ParentEarth.com and pursues sponsorship opportunities. With this structure, the for-profit will be able to sustain the nonprofit while it waits for grant funding.



The Disappearing Barriers Between Business and Nonprofits Are Driving Innovation

Gone are the days when businesses existed to make money and nonprofits focused only on making the world better. Now both organizations are influencing each others’ practices and finding ways to work together.

Non-Profits Profits Companies

Profits Companies Non-Profits

Offset cost of Entire Mission

Offset cost of Taxes



The Hybrid Model Works Best When 1. The nonprofit's unrelated business income threatens its nonprofit

tax status.

2. The for-profit needs help managing its philanthropy. As corporate responsibility programs have grown, some for-profit companies are starting their own nonprofits and foundations to manage charitable activities.

3. Each entity needs something offered by the other.



The Hybrid Model Asset Distribution

• The assets of a not-for-profit organization legally belong to the organization, while the assets of a for-profit organization belong to the owners of the business.

• Entrepreneurs that are focused on earning money would be unlikely to invest in a not-for-profit organization due to the restrictive nature of how the company must handle its assets.



The Hybrid Model Asset Distribution

• For example, if a not-for-profit organization dissolves, the assets of the organization will be donated to another not-for-profit entity.

• If a for-profit organization dissolves, the assets of the company are distributed to the owners of the business according to their ownership interest.



The Hybrid Model Non-profit Tax exemption• A not-for-profit organization may qualify for state and federal tax exemptions. The

determination is made by the Internal Revenue Service (IRS) as to whether an organization qualifies as a 501(c)(3).

• A not-for-profit organization in Texas must apply with the Texas Comptroller of Public Accounts in order to be exempt from Texas state taxes.

• Designation as a 501(c)(3) may provide a not-for-profit organization with an exemption from paying sales and use tax and an exemption from paying property taxes on real estate owned by the not-for-profit organization.



The Hybrid Model Profit Tax exemption• A for-profit organization will not be granted a federal or state tax

exemption. Furthermore, for-profit organizations are required to pay taxes on property owned or revenues made by the company.

• Donations made to a not-for-profit organization with a 501(c)(3) designation are tax deductible for the donor, whereas donations made to a for-profit organization are not tax deductible for the donor.



What Does The IRS Say About Non-Profits & Profits



The Advantages of Profit & Non-Profit Working Together• The nonprofit remains tax exempt and eligible for foundation

grants.

• The for-profit can raise unrestricted funds and make tax-deductible donations to its nonprofit partner.

• Because they are legally separate entities, for-profit subsidiaries often have more flexibility than the income-generating arms of nonprofits.

• Non-profits can also pay talent whatever they see fit, without being charged with excessive compensation.



The Challenges of Profit & Non-Profit Working TogetherHybrid arrangements can get complicated fast:• They require separate boards and management staffs, given that

significant crossover in leadership might signal a conflict of interest to the IRS.

• Any time there is a service transaction between a nonprofit parent and a for-profit subsidiary, both boards have to approve it and be able to show that the for-profit paid actual market rates for the product or service (proving that the parent and subsidiary are conducting arm's-length transactions and not receiving special favors).

• What's more, because hybrids are fairly new, there are no IRS rules on the model.



Companies That Have Their Own Non-ProfitWal-Mart Walton FoundationHome Depot Home Depot FoundationStarbucks Starbucks FoundationJ.C Penny J.C Penny FoundationFamily Dollar Family Dollar FoundationNissan Nissan FoundationDallas Mavericks Dallas Mavericks FoundationAmerican Express American Express FoundationExxon/Mobil Exxon/Mobil Foundation



So What Is The Right Vehicle To Link Non-Profit & Profit Organizations Together?

CHARITABLE REMAINDER TRUST FUND

What is a Trust Fund?



Trust Funds A trust fund is a special type of legal entity that holds Property for the benefit of another person, group, or organization. There are many different types of trust funds, and many different trust fund provisions that change how they work. Generally speaking, all trust funds have three important parties.

1. Grantor 2. The Beneficiary 3. The Trustee

Property = Cash, Stocks, Bonds, Mutual funds, Real Estate, Art, Private Business



The GrantorThis is the person who establishes the trust fund, donates the property (such as cash, stocks, bonds, real estate, mutual funds, art, a private business, or anything else of value) to the fund, and who decides the terms upon which it must be managed.




The BeneficiariesThis is the person or persons for whom the trust fund was established. It is intended that the assets in the trust, though not belonging to the beneficiary, will be managed in a way that will benefit him or her, as per the specifics laid out by the grantor when the trust fund was created.




The TrusteeThe trustee, which can be a single individual, an institution (such as a bank trust department that appoints one of its staff to the responsibility), or multiple trusted advisors, is responsible for overseeing that the trust fund maintains its duties as laid out in the trust documents and applicable law. The trustee is often paid a small management fee. Some trusts give responsibility for managing the trust assets to the trustee, while others require the trustee to select qualified investment advisors to handle the money.




What Does The IRS Say About Trust Funds



Charitable Remainder Trust Fund

• A charitable remainder trust is a trust that provides for a specified distribution, at least annually, to one or more beneficiaries, at least one of which is not a charity.

• The distribution must be paid at least annually for life or for a term of years, with an irrevocable remainder interest to be held for the benefit of, or paid over to, one or more qualified charities.



Charitable Remainder Trust Fund

• The specified distribution must be either a sum certain, which is not less than five percent and not more than fifty percent of the initial net fair market value of all property or revenue placed in trust (a charitable remainder annuity trust), or a fixed percentage, which is not less than five percent and not more than fifty percent, of the net fair market value of the trust assets, valued annually (a charitable remainder unitrust).



So Can a Non-Profit Own a For-Profit Business?

It’s not only legal for a non-profit to set up a for–profit subsidiary, TODAY it’s necessary for a non-profit to partner with a for profit company TO SURVIVE. A non-profit can legally engage in money making activities. However, money making activities that are not related to the core purpose of the non-profit can jeopardize the tax status. .

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Documents

classic example

nonprofit mozilla foundation

hybrid model story pirates

forprofit makes

financial benefit

treasurer benefit

forprofit parent earth

profit business