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- 1. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com How They Work Together
- 2. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com Definition of a Non-Profit An 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
- 3. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com Definition of a Profit Business A 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
- 4. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 5. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 6. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 7. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com Classic Example of A Hybrid Model Story 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.
- 8. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com Classic Example of A Hybrid Model The 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.
- 9. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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
- 10. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 11. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 12. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 13. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 14. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 15. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com What Does The IRS Say About Non-Profits & Profits
- 16. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 17. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com The Challenges of Profit & Non-Profit Working Together Hybrid 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.
- 18. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com Companies That Have Their Own Non-Profit Wal-Mart Walton Foundation Home Depot Home Depot Foundation Starbucks Starbucks Foundation J.C Penny J.C Penny Foundation Family Dollar Family Dollar Foundation Nissan Nissan Foundation Dallas Mavericks Dallas Mavericks Foundation American Express American Express Foundation Exxon/Mobil Exxon/Mobil Foundation
- 19. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com So What Is The Right Vehicle To Link Non-Profit & Profit Organizations Together? CHARITABLE REMAINDER TRUST FUND What is a Trust Fund?
- 20. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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
- 21. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com The Grantor This 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. Property = Cash, Stocks, Bonds, Mutual funds, Real Estate, Art, Private Business
- 22. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com The Beneficiaries This 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. Property = Cash, Stocks, Bonds, Mutual funds, Real Estate, Art, Private Business
- 23. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com The Trustee The 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. Property = Cash, Stocks, Bonds, Mutual funds, Real Estate, Art, Private Business
- 24. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com What Does The IRS Say About Trust Funds
- 25. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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.
- 26. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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).
- 27. Succeed LLC Investment Club Non-Profits & Profits areyougoingtosucceed.com 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. . ABSOLUTELY