How do I affordably start a music/art/educational LLC and non-profit?
September 28, 2015 11:23 PM   Subscribe

I am a known financially developmentally delayed idiot. No really. I hate money. And I want to start a music and art festival on a slim budget and start building a framework to be able to raise funds for it and keep it all clean and kosher and separate while keeping my day job and tax bracket. How do I do this?

I want to start a non-profit electronic music/art/education festival somewhere primed for it and capable of fostering it in amazing ways, including the long term goals of creating a foundation to create and renovate unusual structures for use as theateres

I love my low wage day job and self sufficiency and low taxes, and I want to keep them separate from each other. I reckon I will hopefully end up needing to hire myself, but that's not anywhere near here and now.

How do I start an LLC and non-profit on a budget so I can try to effectively, legitimately and productively engage and entice crowdfunding and fundraising with a structure in place to receive, use and legally protect it as "not my personal money" to protect myself?

And how do I do it if I barely even ever have to pay taxes and currently can legally claim not just 0 but exempt due to income level? How do I keep this separate from my own basic needs and finances?

I have the vision and people seem to like it. How do I build the legal and financial framework to make it happen without totally screwing myself over financially?
posted by loquacious to Work & Money (14 answers total) 4 users marked this as a favorite
Best answer: What kind of scale are you thinking? Incorporating as a 501(c)3 costs a hundred bucks or so (depending on your state) and then allows you to get separate bank accounts, etc., along with some compliance documentation for the IRS.

Because the basic paperwork isn't that difficult and the variability in requirements varies a lot (both state to state and with scale of operation), I'd advise first putting together a solid funding plan — like, a budget, a timeline, longterm funding, projects, etc. — and then thinking about how you want to set up a c3 based on what your needs are, letting the requirements of your model shape what kind of governance structure, etc. you want.

You may also be well served by talking at least briefly to a lawyer in your state that specializes in nonprofit compliance and incorporation law — there are lots of fiddly bits involved from jurisdiction to jurisdiction. But the actual paperwork will be one of the least difficult and most perfunctory parts of setting up a legit c3, and unless you have a restricted funding stream (grants, etc.), you're often better off forgoing that for now and starting the planning process without it on the assumption that you can pick it up later. (There's also that for many small nonprofits, the benefit from being c3 is kinda minimal compared to the reporting infrastructure it requires, so they function first as notionally for-profit businesses that don't actually show a profit and then get official non-profit status later on. That's at the level of, say, many local theater production companies who aren't primarily grant funded. The best idea for organizations of that size is often to just be up front and transparent, not promising any tax benefit but making it clear that you intend to seek that status as it is warranted, commiserate with your success.)

Worrying about c3 incorporation for a non-profit is like worrying about parking when you're building a building — it's essential eventually, but not the best place to start.
posted by klangklangston at 12:36 AM on September 29, 2015 [3 favorites]

Best answer: What is your personal goal with this? Your best bet is to find someone with the business and production experience and convince them of the viability of the idea. Name them the executive director and let them do all the financial work and be the boss, while you take title of Asst Director and do more of the legwork planning. Yes that does mean relinquishing a large amount of creative control. But in the end the thing will exist and you will be a part of it and that will be good.

What you need more than anything else in the second year of a festival is cash (year 1 you just need chutzpah, people will do favors for you just to be a part of it, once you do it again that is over). Even a small arty festival needs sponsorship so I don't see a way to make this work without being the conduit for a significant amount of cash going in and out.
posted by Potomac Avenue at 5:39 AM on September 29, 2015 [1 favorite]

Best answer: There are a lot of parts to your question. Since you're really at the beginning, you should allow a long timeline to develop this idea. Don't be planning to launch next year, for instance.

I would suggest, first, some education. Your local reference librarian can point you to some basic info/readings and state information. At the point you incorporate as a NPO, you will need to register with the state. As klangklangston says, that is not complicated. If you plan to take in and spend money, you need to apply to the IRS for an EIN number using your state registration document. Then, you need to establish a bank account for the organization with one or more signatories. Finally, you apply for a state and local exemption from taxes. That last bit allows you take non-taxable donations.

for many small nonprofits, the benefit from being c3 is kinda minimal compared to the reporting infrastructure it requires

I would qualify this. The IRS has set up budget level thresholds for filing the Form 990, the basic reporting requirement. If your budget is less than $50K a year, all you need to file is the 990-N, what they call an "e-postcard." it's really simple. For small-budget organizations, you can file the 990-EZ, which is no harder than the 1040-EZ. So, until you're moving more than $200K, at which point you really should have an independent accountant, the reporting requirements are not too painful.

It sounds like right now, this is a personal project and you're the only one engaged. That's not likely to work for very long. You will need a small army - for one thing, your state registration will require you to establish a board of directors. Regulations vary state by state about who the directors can be and how many you need, but they are the ones who are entrusted by the state to see that your organization is doing a public good, using donated funds resposibly and keeping it on mission - in other words, they are the state's "trustees." They can certainly be friends and people in your network, but it is a serious responsibility, as trustees are on the hook for things like legal compliance and use of funds. So it is important that you seek some education about selecting and working with trustees. Also, as you think about your team, think about your strengths and weaknesses. You have a vision, so you likely are seeing yourself as the executive director of a NPO. But you hate money, and might or might not hate paperwork and procedure, lengthy meetings and fiscal policies, etc - stuff that is part of being an ED. It may well be that you want to form a team that lets someone else be your deputy director or operational manager, so you can concentrate on the artistic side. Trying to be the uber leader who does all when you have a strong distaste for a big part of that leadership can create problems you will hate.

And you will need fundraising. Since you hate fundraising, you need to connect with and recruit people who will do that, and will enjoy doing it - you need a fundraising committee, perhaps led by someone on your group of trustees.

One thing a festival absolutely needs to have is great insurance. The combination of darkness, temporary structures, lots of people, drugs and alcohol, vehicles and equipment, weather, talent cancellation policies, etc. creates a lot of concrete risk that you and your trustees do not want to be personally liable for. Insurance isn't a frill - you'll need it, because the consequences of not having it can be personally disastrous. It doesn't have to be prohibitive, though.For a once-a-year event you can purchase event insurance which gives you just the coverage you need - that's one advantage of being a temporary event with no permanent infrastructure (like a building), and so it's not horrifingly expensive.

You can certainly get your project started before developing all of these structures. One possibility you might consider is flying under the flag of an existing nonprofit, using them as your financial agent - that could give you a few years before you have to incorporate. One of the festivals I have worked on did just that - a coalition of organizations joined up to start a seafood festival, and we did it under the structure of a local performing arts organization. So we just created a memorandum of understanding where all the orgs agreed that all income and expense from the festival would pass through the performing arts organization, and that org would be the one responsible for liabilities, insurance, compliance, etc. That org was also able to make outlays from its own budget against expected revenue (we projected very conservatively), so we didn't need a cash budget to start out with. It was pretty uncomplicated. An arrangement like that does depend on a high degree of trust between the parties, though. So you could start cultivating relationships with existing groups - performing arts, music, education groups, arts associations maybe - to see whether you could launch this as a project in coordination with them, before going to the trouble of setting up an independent entity, with all that involves.

Finally, I'd suggest starting with some informational interviewing. Perhaps there are one or two festivals you admire and would like to learn from. Or perhaps there are regional small nonprofits putting on single events. Either of these would offer some helpful insights on getting started. So pick a time of year they aren't that busy, and call or write to ask someone in leadership for 20 minutes of their time, coffee on you, to talk about how they started their org and what pieces they put into place. This would be a really enlightening and clarifying next step to take.

There are many resources online about starting a nonprofit. Have a look around. Here are some reputable ones:
Foundation Center: Nonprofit STartup Resources by State
National Council of Nonprofits: How to Start a Nonprofit
Idealist: Nuts and Bolts of Starting a Nonprofit in the US
posted by Miko at 6:21 AM on September 29, 2015 [3 favorites]

Best answer: I am on the board of an LLC that organizes a festival. A few random questions:
  • Do you need both an LLC and a non-profit? Why?
  • Do you have other people who will join the board of your organization/s? If not, don't do this.
  • If so, do you trust them utterly? Like, would you hand them your ATM card and PIN without a second thought? If not, don't join a board with them.
  • Do you have enough money in the bank that you can cover administrative costs for a while?
  • Do you know of a good lawyer to advise you on corporate structure, governance, and liability?
  • Do you know of a good accountant?
  • You say you have a vision and people seem to like it, but how confident are you that if you build it, they will come? A kickstarter campaign might be appropriate for getting off the ground in the first year, with the amount contributed counting towards event tickets. This will also be a good gauge of real interest.
I have more thoughts. Feel free to hit me up by memail.
posted by adamrice at 7:48 AM on September 29, 2015 [1 favorite]

Best answer: What scale of event are you thinking? Hundreds of attendees and local talent or thousands and touring acts? Adamrice is most likely right that there's no need for being a non-profit at first - setting up an LLC is generally fairly simple and all that you need to do to try to pull off a festival for the first time. After that you can see about setting up a non-profit and expanding the scope to the building renovation/preservation.

I'll caution you that many festivals lose money for several years before becoming even break even, so if you want this to become an annual thing, you're best advised to budget for how to cover losses for a while.

Big names will often not play festivals without getting paid in advance so you'll need to do enough fundraising to be able to do that. adamrice's comment about trying Kickstarter is a good one, but there's also some chicken and egg problems there in that many acts won't let you use their name for advertising until a contract is signed. If you have a headliner in mind, you might approach their organization and start getting ballpark figures and gauge their willingness to work with a first time festival organizer on things like fundraising.
posted by Candleman at 9:57 AM on September 29, 2015 [1 favorite]

Response by poster: Quick reply before work, more soon: These are all the kinds of real, informative answers I'm looking for. Thanks!
posted by loquacious at 10:41 AM on September 29, 2015

Best answer: Could you grow what you want to do over time? Maybe start out in a small space, coffee place, gallery, bar, etc, that you do one night a month or whatever?

It's just that there's a LOT involved with doing a festival simply on the legal front with insurance, security, permits, contracts that it might be too ambitious to plan that (and the framework for fundraising for it) as a first step.

Also, Kickstarter is not a one size fits all solution. I'm not sure it would be appropriate for a festival in what seems to be a pretty embryonic state.
posted by tremspeed at 12:15 PM on September 29, 2015 [1 favorite]

Best answer: a non-profit electronic music/art/education festival

Festivals like this (give-or-take the "electronic" part) are a core clientele of the company I work for, providing and operating stage, sound, and lighting equipment for their shows. We've worked with many of them for years, some have grown quickly, some slowly, some have grown and then died.

How do I start an LLC and non-profit

This is very much dependent on the state you are in - if the location in your profile is correct, here's the Non-Profit Corporation page for the Washington Secretary of State's office, and here's their pdf Non-Profit Handbook.

without totally screwing myself over financially?

You seem really really concerned with personally not making money on this which . . . . . is kinda putting the cart before the horse. Even hugely "successful" non-profit festivals and events in my area are only able to stay afloat and grow though donations from large corporations and grants from private and public foundations. There is one exception I can think of, and they've had to drastically reduce the scope of the event in some years due to finances or organizational problems. As Candleman says, losing money is more likely than making money, especially in the first few years.

You may not be able to get these sort of donations and grants without incorporating as a 501(c)3, but as others have noted, actually doing this requires an organizational structure that you may not be ready for yet. So nthing that forming an LLC is probably all you need to get started and have separation between your personal finances and the festival - if the festival doesn't make any money, you don't put any money in your pocket and so you don't declare it as income and so you don't pay taxes on it.

this is a personal project and you're the only one engaged. That's not likely to work for very long. You will need a small army

I am quoting Miko for truth, here - even before you get to needing a board of directors in order to become a 501(c)3, every festival I've worked with has started with at least two people, and usually more like 3-5. There's just way too much to do for one person to handle it all, and each person involved brings certain strengths to the table - one's good at promotion, another knows how to get the acts, another knows how to thread the bureaucratic needle of permits and insurance, so on and so forth.

somewhere primed for it

If you want to be able to pull this off on a minimal budget, this "somewhere" kinda needs to be where you are. Hopefully if you've been someplace at least a couple of years, you'll have made connections and know people who can help you organize this and are willing to donate time, money, and energy into making a festival happen. Blowing into a new town with big plans and no connection to the community is going to make a lot of people think you're some kind of scam artist, and you simply won't have the local knowledge or resources that will enable you to do anything for less than top dollar.

One possibility you might consider is flying under the flag of an existing nonprofit, using them as your financial agent

Again, quoting Miko for truth here. Said non-profits could be local/state semi-governmental arts organizations, or museums, or theater groups, or neighborhood improvement NGO's, or colleges and universities. Or even seeing if local governments have programs or plans for support of the arts and culture and could provide help and resources.

the long term goals of creating a foundation to create and renovate unusual structures for use as theateres

This sounds like a fantastic idea, in general, but having provided tech support for some arts-grant-distributing meetings (and thus gotten a somewhat behind-the-scenes look at the process), I think this is a bit too large of a goal for your first venture, at least officially. Going from zero directly to building renovations (hugely expensive! and a morass of laws and regulations!) for the purpose of creating an art space (long-established existing art spaces can barely keep afloat these days!) is going to strike no small number of people (who you need to contribute money to your project) as thoroughly unrealistic. Better to concentrate on creating and sustaining the festival first, and later on you can branch off with a different non-profit for your theater idea.
posted by soundguy99 at 1:09 PM on September 29, 2015 [2 favorites]

Response by poster: Yeah, to be clear the goal is to start very small and grow from there. Hundreds of attendees would be a large first event. As for a team, that's what I've been building for the last year. This is why I'm now investigating legal/financial plans and structures so I have a framework to start building with.

The long term plan is in phases and aiming for a two decades to full fruition, if it even happens.
posted by loquacious at 1:28 PM on September 29, 2015

Response by poster: Ok, I have a little free time to respond more, and distribute best answers like candy because they're all really good answers that have both exposed some blind spots as well as confirmed that I'm also already hitting the mark on a lot of important details.

So, thinking out loud and responding to as many points as I can:

Yep, I can't do this alone. I have a loose team of people I've been gathering over the last year, many of whom I would actually trust with my debit card and PIN - or life. This is why I'm starting to really look at non-profit vs. LLC and/or both. They all know that we're talking about volunteerism.

I also have a cadre of supporters in high places, some of them directors of deeply funded programs and they've been encouraging me to go for it and they're actually enthusiastic fans of my goals and ideas and have repeatedly checked in with me if I'm still working on it - and they're not unwise, unaccomplished people. (Which I appreciate very much.)

I have talked with and thought about working under their auspices, but their focus is different. I will likely interface with them and partner with them, or even do work under their banners, but ultimately I have a different aesthetic focus and I desire to have a lot of aesthetic (and political) control of the project.

No, I don't actually have an actual problem with doing fundraising. I just know I'm fairly bad at finances despite my frugally kept and now consistently positive bank balance, and so I want to set up structures so I can keep that money smartly out of my filthy weirdo hands in some way.

I plan on consulting an attorney and retaining an accountant as soon as humanly possible or affordable, which would be triggered by as little as a thousand or so of fundraising in the bank. It sounds like the non-profit is the best way to start that on a budget

I am putting together some media and documentation for both communication and fundraising efforts is going to start happening hopefully this very month so I can show and tell people what I'm talking about and trying to do. I actually have plans with a good copywriter and a talented and published photographer, and I can totally also do film/audio and editing of my own, because I have many, many fancy hats.

And yeah, I'm going to start slow. Renovating, using and/or documenting the structures I'm talking about would be years in the future.

One of the main project goals I'd like to hit would involve hundreds of thousands if not millions of dollars just to do the variety of impact and feasibility studies and interface with the state on like three or four different departmental levels, and we're probably talking about 20+ million to actually renovate the structure into the theater I have in mind.

And I know that sounds totally insane - and it is, it really is - but without naming names we're talking about a time, place and culture where it would be an amazing asset and very unique thing in the world. It would be the only theater like this anywhere.

This particular structure is perfectly round, underground, has a natural 45-60 second reverb/delay acoustical properties, is already famous and beloved by locals and weirdos from around the world, is named after someone, and it exists at place that is totally dominated and driven by music/art/cultural festivals, and it wouldn't be used just for my festivals. This would be it's own project and entity, and would never be a thing I would personally own - it would remain in the hands of my state and the organization(s) that keep it in trust for the public, because it is actually public property. Yeah, no, this idea is actually more insane than anyone here realizes, because it's pretty firmly in "spurious and unexpected public works" territory.

So, my festivals are one path to establish the track record and rapport with the entities in charge to make that renovation happen. (Message for details, I don't want it in plaintext, here.)

Hrm, what else? Oh I've worked for and volunteered for and helped run minor to major electronic music events, festivals and major yearly fests. I have an idea of what I'm in for. The director/founder of one of my favorites usually loses his voice completely by day two of four or five. These have been the happiest moments of my life, I'm now fairly accomplished at it (including performing on stage myself) so it's a prime motivation for wanting to do it.

Insurance would be mandatory. I can also side-step this locally by using for-hire facilities with existing insurance riders, but my own event, location or general coverage insurance will totally be a thing.

Paying talent will also totally be a thing. That's a primary goal. Getting paid to make music is awesome and I totally support that. I have an advantage of having a whole lot of friends/performers in the electronic/experimental music scene and 25-ish years of engagement with it, so I'm less worried about attracting talent that I want to curate and present than I am attracting enough audience and funding to make it happen.

And I already know one way to attract the kind of talent that I want to invite is to offer something unique, like free housing and good food and great scenery and environments and interesting facilities to perform in, in addition to being able to meet their price and rider.

So it souinds like I need to look at the non-profit route first, and feel around for an attorney and accountant. I actually know about two of each in this town that would be amenable to talking to me.

And last, feel free to keep responding with general festival/non-profit/arts stuff. My next AskMe is probably going to be about how to write grants and what that process is like.

Thank you!
posted by loquacious at 10:22 PM on September 29, 2015

Best answer: it is actually public property

I would say, then, that the organizations that manage this space are the very first people you should talk to. Beginning there could save a lot of time and heartache.

I have talked with and thought about working under their auspices, but their focus is different. I will likely interface with them and partner with them, or even do work under their banners, but ultimately I have a different aesthetic focus and I desire to have a lot of aesthetic (and political) control of the project.

None of that is inconsistent with using them as a fiscal agent (all you need is their EIN. ;) ) But I can see good reasons why you might need your own organizational identity for this.

It's pretty ambitious. Start small. Good luck.
posted by Miko at 5:56 AM on September 30, 2015 [3 favorites]

Best answer: Just wanted to put in a plug for your local library.

A quick search of my library reveals lots of helpful books:
  • Starting & building a nonprofit : a practical guide / Peri H. Pakroo
  • Financial and accounting guide for not-for-profit organizations / John H. McCarthy, CPA
  • Nonprofit finance for hard times : leadership strategies when economies falter / Susan U. Raymond
  • How to manage an effective nonprofit organization : from writing and managing grants to fundraising
  • From passion to execution : how to start and grow an effective nonprofit organization / Lyn Scott
  • Doing good better! : how to be an effective board member of a nonprofit organization / Edgar Stoesz
Load up your local library's online catalog and see what they might have for you.
posted by kristi at 9:48 AM on October 1, 2015 [2 favorites]

Response by poster: I would say, then, that the organizations that manage this space are the very first people you should talk to. Beginning there could save a lot of time and heartache.

Yep, I've been talking to them about my ideas all year. There is an existing precedent using these structures for art and music, so it's not a new idea to them.

At this point it's mainly a matter of planning, logistics and insurance - money, basically - at least as far as temporary events is concerned.

Converting the main structure in particular that I'm interested in into a permanent theater is obviously much more complicated and expensive, but that's a long way from here, and one way to get there is to try to show how it could be utilized with temporary events as both their own independent thing and as well as a teaser for what could be.

I'm now officially reached out to someone in town that are successful business owner who has also done both non-profits and LLCs, who is also an active chamber of commerce member. I have appointments to pick their brain and talk about who might be locally available for low-cost accounting and lawyering who already specialize in these kinds of art/music events.
posted by loquacious at 12:35 PM on October 2, 2015 [1 favorite]

At this point, I'd really seriously consider partnering with an established c3 as a fiscal sponsor. They usually take a small percentage of what you bring in, in order to cover the admin fees, but allow you to basically turn over a lot of the part that worries you the most — the money — to someone else who has the infrastructure to handle it. Becoming a c3 on your own isn't hard, and may be necessary anyway depending on the type of relationship you have with the sponsor, but I'm a big fan of the idea of expertise increasing impact. If you're really interested in having the artistic control, shoot for that — become the artistic director of a new non-profit that partners with an established one, using their infrastructure to support your goal of putting on the festival.

As an analogy, when I was communication manager over at the non-profit I used to work at, I could and did a fair amount of direct graphic design work, but when I could hire a freelancer and oversee them, the amount of work we were able to put out more than doubled because a lot of stuff that I could do just took me significantly more time than having a specialist do it. Focus on what you're great at, and delegate as much else as possible. And, frankly, since you're skittish about the practical end of the financials, you would likely be a poor choice as the executive director, since a majority of most EDs' work is focused on fundraising. They'll be supported by a development director or staffer, but find someone else who believes in this and let them gladhand donors and chat up agency heads. Due to the general budget state of most non-profits, people often end up doing more jobs than they should and taking on jobs that they hate or are poorly suited for. That's a recipe for burnout. Figure out what your specialty is, what specific talent (beyond vision) you're bringing, and then spend as much of your time as possible doing that.
posted by klangklangston at 12:59 PM on October 2, 2015 [1 favorite]

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