Who really owns a nonprofit organization?

The concept of who owns a nonprofit organization can be difficult for some to grasp, especially since the answer is, “Nobody…and all the worldWe run into this confusion with new clients quite often. And, given people’s understanding of how the basic business works, it’s understandable. To fully appreciate the concept of “non-ownership,” it’s helpful to first talk about the various types of business entities. Then we’ll look at the purpose of the organization. By the end of the article, it should make a lot more sense.

There are several different types of business entities. For-profit companies make up the majority of them. Here are some (there are others)… these all have an owner or owners:

Single owner: A person who conducts business for profit. The sole proprietor takes full responsibility for all liabilities and debts of the business.

General Partnership: Two or more individuals as co-owners of a for-profit business.

Corporation (for profit): The corporation itself assumes all the liabilities and debts of the Corporation. A corporation is owned by the shareholders. A shareholder enjoys protection from the debts and liabilities of the corporation.

S Corporation: A corporation may seek “S Corporation” status for federal income tax purposes. Income from an S Corporation is taxed only once: at the employee or shareholder level.

Limited Liability Company: An LLC is a formal partnership that combines the limited liability advantage of a corporation and the flexibility and unique taxation of a general partnership. An LLC has members instead of shareholders.

With the exception of the LLC, the business entities listed above may not be used for non-profit organizations. Even the use of an LLC is extremely rare; all nonprofit LLC members must be recognized 501(c)(3) organizations, not individuals or other types of entities. The most popular business entity for nonprofit organizations is the nonprofit corporation. This type of corporation is different from a typical for-profit corporation or S-Corporation. Those with shareholders (owners). A nonprofit corporation has no owners of any kind, only concerned parties. A stakeholder is not an owner, but someone who has an interest in the successful operation of the organization. Stakeholders may be members of the nonprofit organization, or even beneficiaries of the nonprofit organization’s activities. One thing the interested parties have in common: they have no legal capacity for personal gain…therefore, nonprofit. A nonprofit corporation is formed to carry out a public purpose, be it religious, educational, charitable, scientific, or whatever. It is prohibited to act in a way that results in private benefit (profit) for individuals.

How can it be? Someone has to own it, right? No, not really. The nonprofit organization is not “owned” by the person or persons who started it. It is a public organization belonging to the general public. Those responsible for the operation of the organization for the stakeholders are the members of the board of directors.

Also, a nonprofit corporation cannot be sold. It is simply impossible. If a nonprofit corporation were to “close” or dissolve, the nonprofit’s board of directors must distribute all of the nonprofit’s assets to another nonprofit corporation after they have been liquidated. all debts.

“No one… and everyone!” Hopefully now, it is much clearer what we mean.