One of the most important choices you’ll make in founding a company or musical organization is whether or not to apply for nonprofit corporation status. Unfortunately, just the thought of having to wrestle with this topic makes most of us want to run screaming for the hills. Here are a few facts and some related information that will hopefully help clear the water for you, at least a bit.
Why incorporate? Incorporation means the company itself is liable in case of debt or other problems—not you. This limited liability is a big reason—perhaps the biggest—to go through the admittedly arduous process of incorporation. Once you’ve incorporated, the corporation is the entity to enter into contracts, pay taxes and so on.
It takes too long! It does take a long time—usually at least a year and often longer before you receive that precious tax-exempt number. Until then, however, look into umbrella coverage with another nonprofit corporation. Nonprofit status is retroactive, and even if you stay with an umbrella organization for a couple of years, once you receive your own nonprofit status it will extend over the previous time period retroactively.
More advantages? Nonprofit status enables you to receive both public and private funding. It also makes you eligible for such things as free public service announcements (PSAs), cheaper advertising, and other perks.
What about disadvantages? Incorporation isn’t free; you will be required to pay a number of fees, including attorney costs if you have a lawyer take care of it for you. You will feel as if you’re drowning in paperwork, and it is time-consuming.
Not every organization will find nonprofit status a benefit. But the majority of arts-related organizations in this country go this route, for the obvious advantages. If you’re interested in learning more about how to incorporate as a nonprofit organization, here are a few resources for further information.
The Nonprofit FAQ:
http://www.nonprofit-info.org/npofaq/
The National Council of Nonprofit Associations:
202/467-6262 or http://www.ncna.org/
The Nonprofit Gateway:
http://www.nonprofit.gov/
Action Without Borders:
http://www.idealist.org/
