Not everyone is in business to make money for themselves. Some organisations are set up and run solely to benefit other people. These tend to get grouped under the heading of ‘charities’, but it is more accurate to call them ‘not-for-profit’ organisations. These organisations come in many shapes and sizes, so if you are setting up your own not-for-profit business, there are some important considerations. For example, which structure should you adopt?
What does ‘not-for-profit’ mean?
‘Not-for-profit’ is an umbrella term, which covers a wide range of organisations. The term means that the organisation uses any surplus money it makes (profit) to achieve the purposes and goals of the organisation. In other words, it does not distribute the money to directors, shareholders or other members. It uses profits to achieve (usually) philanthropic ends.
There are two main organisational structures under the not-for-profit umbrella; ‘charities and community groups’, and ‘social enterprises’. The two structures differ from each other in the organisation of controlling bodies, and their funding.
Charities and community groups
These are generally controlled by a management committee or board of trustees, who volunteer for the unpaid role. Members of the committee are usually elected or invited to join. The committee may employ paid staff, call on unpaid volunteers, or use a mixture of both, to perform the functions of the organisation. The functions may include provision of services or distribution of funds.
The committee themselves do not gain financially from their work. Charities and community groups are usually dependent on donations from the public and grants. They may own property or sell goods and services, but these are not their principle reasons for being.
These are generally controlled by individuals who own or have made an investment in the enterprise, or who are paid a wage to do the job. Sometimes, larger groups of people become members by making an investment in ‘community shares’ in the enterprise.
Social enterprises tend to sell goods or services, or invite people to invest to keep going. They do not tend to rely on donations or grants. Profits are reinvested in the community.
What kind of not-for-profit structure suits my needs?
This can be a complex question, and if in doubt, always seek professional advice. Here are some brief suggestions:
A charity or community group structure
This may be the best fit if you are a group of individuals co-operating to achieve an end, and working on an unpaid voluntary basis. Examples include community improvement and service provision projects, and fundraising for local causes. Your controlling committee is made up of volunteers, although you may be employing paid staff. Funding for your group is by donations or grants.
If your group fits all these criteria, then a charity or community group structure is probably the best option.
A social enterprise structure
Businesses controlled by owners, investors, or paid staff fit into this category. Social enterprises are reliant on trade rather than grants – earning revenue from sales of goods or services. The ensuing profits are invested in the community, or put back into the business.
Many different requirements
Each structure comes in many different forms, each with its own set of requirements and controls. Therefore, your choice of structure will have a big impact on the legal requirements you will need to meet, including the need to register your organisation. It can be bewildering trying to find your way through this maze, so it is a good idea to get some professional help to preempt any problems.
For more information on not-for-profit businesses, email us at firstname.lastname@example.org or complete the form below.