What's the best legal setup for a local chorale?

June 15, 2007 11:03 AM

We are a upstate NY local chorale, 10 years old now, reorganizing with a new director and we are not sure of the best legal setup. We want to have a board with officers so the chorus members can become more involved in management. Currently there is just a tax ID#. Should we incorporate as a non-profit and get 501(c)(3) status? Just incorporate? We want to try and get grants to buy some risers, for example, and don't know if non-profit status would be required. But we are also thinking of raising money by paid singing gigs (as opposed to our regular community concerts where people donate to support us) and we don't know if we could still do that as a non-profit. We would like to know what other groups have done, and would be grateful for any advice.
posted by tejasa to law & government (7 comments total)

Being a non-profit doesn't mean you can't raise or make money. It means you cannot turn a profit at the end of your financial year.
posted by DarlingBri at 11:19 AM on June 15, 2007

"Non-profit" is sort of misleading. Being a 501(c)(3) certified nonprofit means that any money made must be used for programming/furthering the mission of the organization, not that you can't make any money at all. It also doesn't mean that you must operate on an exactly balanced budget or alway run a deficit; non-profits are allowed to invest surpluses into vehicles such as endowments, etc. to ensure the future of the company.

I'm a professional at a large non-profit now, and have worked in a paid and volunteer capacity at many others over the years. There are a lot of hoops to jump through for your 501(c)(3), but I think it's worth it in the long run. Many grant-making organizations won't even accept applications from non-approved charities; if you qualify, it can only help to get certified.

Good luck!
posted by non sum qualis eram at 12:29 PM on June 15, 2007

Thanks for the clarification. One of our people had the strong opinion that as a non-profit the chorale could accept donations but could not be paid for performing. Now I feel encouraged to start jumping thru those hoops!
posted by tejasa at 1:06 PM on June 15, 2007

I work for a 501(c)(6) which is also a kind of non-profit, and we can and do make more money than we spend some years. This money either funds other programs or goes into our reserves. Where it doesn't go (and this is part of what makes non-profits different than for-profits) is into the pockets of owners or stockholders.

If a non-profit does make money doing something unrelated to it's mission (for example, if your chorale group started selling used cars or something) the non-profit has to pay UBIT (unrelated business income tax) on that profit. But it wouldn't necessarily lose it's non-profit status as long as it doesn't get into too many non-mission activities. I'd wager a guess that singing is pretty central to the non-profit mission of a chorale.

I am not a tax lawyer or accountant. One specializing in non-profits could answer any further questions with ease.
posted by misskaz at 1:59 PM on June 15, 2007

Yes, if you want to receive grants you must have nonprofit status (501(c)(3) or equivalent).

Paid singing gigs would count as Program Revenue which in no way jeopardizes your nonprofit status and in fact is a benefit to the org. as a whole. Program Revenue and Internally Raised Funds are one way to demonstrate the viability of your organization -- something all but required by most grant-making organizations when determining whether or not to grant funds (as counter-intuitive as it may sound grant-making organizations don't want to fund orgs with no other source of income, they want to know the project is supported on many levels and that a grant from them would contribute to the continued success of the org.).

I operate a nonprofit consulting business and have worked with dozens over the years. A majority of these organizations do not provide their social services (art, disability services, neighborhood enrichment, etc.) free from charge, although the cost to participants is reduced when serving a low-income population.

Forming a nonprofit is no small undertaking but I'll limit my response to actually answering the question!
posted by click at 2:29 PM on June 15, 2007

Being a non-profit doesn't mean you can't raise or make money. It means you cannot turn a profit at the end of your financial year.

As non sum qualis eram said, this is misleading. Being a non-profit doesn't mean you can't turn a profit (i.e. raise more than you spend). It means that you cannot have shareholders, owners, or directors who receive dividends from the profits. You can have paid staff. Directors can also be on staff (check with statutes for your state). All profits must be turned back into operations. IANAL, but I am an nfp consulant.

You must be nfp in order to accept foundation grants and tax-deductible gifts. You need not be nfp to accept marketing sponsorships, as the donor can write those off as a business/marketing expense.

You can make money by engaging in your primary activity (such as performing concerts for money), but check with the IRS about what constitutes unrelated business income. This may vary depending on who you talk to on any given day. Always err on the side of caution. You do not want to mess with the IRS.

If you talk to a lawyer about going the nfp route, please get a lawyer who knows about this stuff. I make a fairly decent living rescuing nfp's who have been badly advised (not to mention overcharged) by clueless attorneys. Establishing nfp status (at least in Illinois) is time-consuming, but easy and free. As I've linked before, you really should contact these people before you take a single step (if you are not in Chicago, they can probably hook you up with someone in your area).
posted by nax at 4:49 PM on June 15, 2007

Thank you all for your comments, and your time. Nax, your comment and that link were particularly helpful, and we will follow through.
posted by tejasa at 11:43 AM on June 18, 2007