Two Companies - Non Profit Company & Profit Company - (No Salary in Non-Profit)

[TheLindseyCorporation]

Hello Guys,

So, here is my question. I have been running my own Profit company for several years now, it is an Internet Marketing company, which offers services such as Social Media Marketing, SEO, Web Design, Web Hosting, etc. It is a profit business, meaning that we sell products/services, I pay the expenses out, pay the employees, and then from time to time, take a draw out of the profits as I am the owner.

Now, last week I decided to start a "Non-Profit" organization for individuals with Kidney disease. I understand when it comes to "Non-Profit" companies there has to be a difference in the way money flows in and out of the company. I don't plan on taking any salaries from the Non-Profit even though I will be the one handling all the day-to-day operations and things. However, I do see this company growing alot quicker and bigger than my actual PROFIT company above.

So, my question is this. Since many of the Programs we will be offering through our Non-Profit organization will be helping individuals through "social media campaigns" is it illegal or wrong to be essentially "Hiring" my other company to perform those services? Or is that the way it is normally done? As I will own both companies, but my team from my MARKETING company will essentially be the ones PERFORMING the campaigns for the Non-Profit company.

I want to make sure this is not illegal, as I take draws and things from my PROFIT company, NOT my Non-Profit, I will NOT be taking any money from the Non-Profit company, but I DO take money from my PROFIT company, so I want to make sure that there is no illegal issue there or anything of that nature.

[Freelancier]

If I were in your shoes, I'd get an attorney to give you some pro-bono help getting the non-profit started, because there's a bunch of paperwork and structure to put in place.

Generally, a non-profit has a board of directors... people who sit on the board are expected to help raise money (rain makers!) to keep the NP going or they get asked to leave so that someone else can help bring in money. Day-to-day operations is left to a manager (hired by the board) who is responsible for making sure services get provided and managing volunteers/other workers.

If you do what it sounds like you're doing, you're coming very close to not having two separate organizations, because you don't have enough separation of resources. But IANAA. Which is why I think your first step needs to be to find one of those to help you get things up and running and to provide you with guidelines about how you can share resources between the organizations (and maybe get tax breaks for it). In fact, the atty can be the first person the board and help you recruit other people to the board.

[TheLindseyCorporation]

If I were in your shoes, I'd get an attorney to give you some pro-bono help getting the non-profit started, because there's a bunch of paperwork and structure to put in place.

Generally, a non-profit has a board of directors... people who sit on the board are expected to help raise money (rain makers!) to keep the NP going or they get asked to leave so that someone else can help bring in money. Day-to-day operations is left to a manager (hired by the board) who is responsible for making sure services get provided and managing volunteers/other workers.

If you do what it sounds like you're doing, you're coming very close to not having two separate organizations, because you don't have enough separation of resources. But IANAA. Which is why I think your first step needs to be to find one of those to help you get things up and running and to provide you with guidelines about how you can share resources between the organizations (and maybe get tax breaks for it). In fact, the atty can be the first person the board and help you recruit other people to the board.

This is not a Corporation, it is an LLC, so it doesn't have a Board of Directors.

As far as hiring and things of that nature, we don't have the capital to hire anyone at the moment.

[turboguy]

A non profit can pay salaries. That has little to do with anything. I am heavily involved with one non profit and we have a part time employee who we pay a management fee. I do think we 1099 her but I am not sure of that. Whatever we do as far as the 1099 I will not worry about since she is a CPA. My only point is that a non profit can pay management fees or salaries. I would be concerned in your case that it could be questioned. In the case of the one I am involved with it does have a board of directors.

[Freelancier]

This is not a Corporation, it is an LLC, so it doesn't have a Board of Directors. The structure you put in place for your non-profit has nothing to do with how you register it with the state... it has to do with one person not being in control and having to do everything including all the fund-raising. By putting a board in place, you now have several volunteers, people who are committed to implementing the non-profit's goals, as well as people to help raise funds and to turn the non-profit into something that's self-sustaining.

[TheLindseyCorporation]

The structure you put in place for your non-profit has nothing to do with how you register it with the state... it has to do with one person not being in control and having to do everything including all the fund-raising. By putting a board in place, you now have several volunteers, people who are committed to implementing the non-profit's goals, as well as people to help raise funds and to turn the non-profit into something that's self-sustaining.

Well, we have several volunteers, that is not a problem. This hasn't really answered the question I am afraid.

So, maybe I went into to much detail. Should I just try to get my staff to volunteer their time to do the service we provide to our patients of the non-profit? Or is it okay to be able to basically 'Hire" another company to do them for us?

[tallen]

Non-profits are not owned by individuals -- as soon as they are recognized as charitable organizations by the appropriate jurisdictions (state and federal), they become "owned" by the community at large. One of the requirements of such recognition is to have a bylaw that discusses the dispersement of the organization's assets in the event the organization closes or discontinues -- and those assets must be transferred to another non-profit or government receiver (generally they do not revert to the founder or the donors). Also since a non-profit is not owned by any one individual, but is ultimately "owned" by the greater community, there needs to be a procedure established in the bylaws for the "election" of directors that represent the interests of that community. I think you will find that most charitable non-profits are essentially considered as corporations, but really the concept of corporation vs. LLC, etc..., doesn't really apply to such organizations, since there are no owners other than the greater community.

The non-profit can certainly hire other entities to do work for it, and can pay the going rate, but there would be an expectation that the organization will avoid conflicts of interest. Eventually, your for-profit company will have to compete for the non-profit organization's business.

But I am not an attorney nor an accountant. If you intend to seek recognition as a charitable organization from your state and the feds, you probably should seek the advise of qualified professionals, or at least look carefully at other recognized organizations similar to what you want to establish to see how they are structured (as charitable organizations essentially "owned' by the greater community, their bylaws, etc... should be readily available to you).