You Don’t Need Legal Status to Not Make Profits

Question:

Is Sole Proprietorship the best way to start a business for poetry readings and novelties? Can you be a non-for profit and Sole Proprietor? How much can the CEO make if this is possible?

Answer:

  1. Not-for-profit is generally about religions and schools and organizations with social purpose. Don’t confuse the legal status of not-for-profit, which is about not paying taxes on profits, with the fact that poetry readings and novelties is not a business that anybody expects to make a profit. There’s a lot of legal tape involved with being a not-for-profit, and since you’re probably not going to make profits anyhow, why bother?
  2. However, I’m not an attorney. You should ignore me and ask an attorney you can trust. Check references, ask everybody you know, look for somebody with experience in small business and preferably also non-profits. The answers to your questions depend a lot on the specifics of your special case.
  3. I bet you’re going to end up as a sole proprietorship, not making a profit, but paying yourself as much as you possibly can. Take the money you bring in, subtract expenses, and consider yourself very lucky and very successful if the CEO’s salary is a matter of choice.
  4. Not-for-profits pay salaries to employees. They are run by foundations. If the salaries to employees get much above what the government considers market rates, then the organization might lose its not-for-profit status.

Tim.

One thought on “You Don’t Need Legal Status to Not Make Profits

  1. Hi:
    Although I generally appreciate your knowledge about a wide variety of subjects, it seems that you confuse in this answer the legal status and the IRS status of NFP's. These are two different things. At least in the State of Florida, you file for a NFP in much the same way as you do for a regular corporation (or C corp.)There are some differences such as the description of the corp. has to be appropriate, the distribution of assets, in case the corp. will be dissolved, has to meet certain requirements, and By-laws are mandatory. I do not know about other states, but the state of Florida is very good in providing all the information you need.

    What you talk about in # 1 and #4 of your answer seems to refer more to the IRS tax exempt status. Usually 501 C*. There are different levels. 501 C3 seems to be the most popular and is used for the different types of funding giving and funding receiving charities. The tax exempt status requires a separate application with IRS.

    You can be a Not for Profit without having the Tax exempt status with the IRS. There are pros and cons in all of this, but it would go to far here to go into that on this blog. Salaries (and benefits) to employees and others is mainly an issue if you have (or applying for) the tax exempt status. The IRS is (rightfully so) very strict in this regard.

    I am sure you know all this, it just didn't come out in your answer.

    Anyway,I am not an attorney either. So ignore me also and check with the State you would like to incorporate in and check with the IRS.

    Have fun

    Rudy

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