Should a Christian Band be Non-Profit?

Non Profit Christian Band
Maintaining NonProfit status is expensive.

NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO. NO.

Almost Always…

NO.

Here’s why…

  • It is expensive to form a non-profit corporation.
  • It is expensive to maintain a non-profit corporation.
  • Non-profit corporations are one of the most restrictive types of business.
  • Non-profit corporations require more paperwork than almost any type of business.
  • Non-profit corporations will allow the band the least amount of control over their ministry and business.
  • Non-profit corporations are a lot of work.

It is true that donors give larger amounts of money when they can take a tax deduction.  It is also true that charitable foundations give grant money to non-profits. But, the tax benefit to potential donors generally just does not pay off for Christian bands.  People that donate large amounts of money most often give it to organizations that address a physical need, such as food pantries or poverty relief in third world countries.  Additionally, funders of larger donations usually require paperwork to ask for the donation as well as paperwork to show how the money was spent. In the end, the band may receive more money but most often those donations are not increased enough to cover the costs or justify the huge amount of time it takes to get them.

That was the short answer. Read on if you need more info – we’ll crunch some numbers and give you examples. Let’s take one issue at a time.

It is expensive to form a non-profit corporation.

The filing fees with the IRS are over $500. If you are able to learn how to fill out the forms correctly you may get off easy here. But, I have not known many people who got it right the first time. Then, of course, you have to deal with your state laws; every states filing fees and requirements are different. Some people are able to convince an attorney to file all the forms pro bono. This is a HUGE blessing and does not happen often. If you are not able to figure out the forms by yourself and need to hire an attorney, plan on additional fees of at least $1,000. I have heard of companies being able to get non-profit status for $750 total but most people end up paying in the neighborhood of $2,000 when it is all said and done. More start up information is available here.

It is expensive to maintain a non-profit corporation.

Non-profits are not required to pay taxes (which can save you a ton of money when buying equipment), but they are required to file tax forms. Of course those forms have filing fees – usually in the neighborhood of $250 per year Federal plus state fees which vary widely. Can you file these forms yourself? Maybe, but probably not. Most organizations hire an accountant to do the basic forms. Also, non-profits are required to give employees W-4’s and independent contractors 990’s… more accounting fees. (Let’s not even discuss payroll taxes and withholding.) Most small non-profits spend in the neighborhood of $1000 per year for their accountant. The big organizations spend a lot more. Your accounting fees could skyrocket  if you do not keep awesome business records using a professional program like Quick Books. And guess what happens if you do not file the appropriate forms at the right time… fines, and lots of them. You can get the fines waived but it usually takes an accountant or attorney to wade through the process (more accounting and legal fees).

Non-profit corporations are the most restrictive types of business.

There is a lot of paperwork that has to be filed with the government for tax purposes in a non-profit. There is also paperwork that has to be filed which tells how the company will be governed – these are called by-laws.  Technically you get to write your own by-laws but the federal government and most state governments have requirements you must follow. These requirements include a Board of Directors that runs the business. The ins and outs of which band members are also Board members and who gets paid can be tricky. Ideally, employees get paid but do not have a say in business decisions and Board members make decisions but do not get paid… in real life that can be a problem. There are ways to work it out, but it needs to be done correctly by someone who knows what they are doing or Uncle Sam can revoke your non-profit status. There are also an almost uncountable number of laws governing things like what qualifies as a legitimate business expense, when the company can pay for food, how to write down mileage expenses, and even who has to be notified if you receive a donation of over $5,000. Many of these rules are applicable to any corporation, some are applicable to any form of business, and some are specific to non-profits. If you know what you are doing it’s not a problem, if not… it can be a real headache. You cannot just do whatever you think is right in any given situation; you must follow federal laws, state laws, and your organizations by-laws.

Non-profit corporations require more paperwork than almost any type of business.

Every business requires the paperwork of bank statements,  inventory records, and lots of receipts for everything. Plus, we’ve already talked about the legal, accounting and tax paperwork for non-profits. How much more can there be? Yup… you guessed it… a lot. Since non-profits are governed by a Board of Directors, records of their decisions should be kept on file. This includes agendas and minutes from Board Meetings and committee meetings. Personal records of individual Board Members are also required, these include information like when they served as a Board member, their address, social security number, and phone number. Board members are liable for wrongdoings of a non-profit, so these records both protect from and allow prosecution in extreme cases. Non-profits also must keep a record of their assets, how much they are worth, and what happened to them if they are disposed of (yes, there are even laws governing that). If the non-profit shuts down records must be kept of where the assets went, the IRS will ask. Other types of businesses should keep these records as well, but non-profits will generally receive much more IRS scrutiny in this area.

Non-profit corporations will allow the band the least amount of control over their ministry and business.

We have already discussed the Board of Directors and employees… the Board sets policy and employees implement their decisions. This is limiting enough, but the Board cannot set any policy or make any decision they want. When you file paperwork to set up your company you will include a mission statement. It is the Boards job to make sure your organization is living up to the mission statement. Not doing the mission or doing something other than the mission statement can cause legal issues. A certain amount of projects other than the mission statement can be done and mission statements can be changed, but again you have to know what you are doing. Legal advice is advisable.

There is also the issue of what to do with the profits or losses of the company – you are limited in your choices as a non-profit. The greatest limitation is that those profits cannot end up in your pocket.

Non-profit corporations are a lot of work.

I think you have probably figured this one out by now.  The administration of a non-profit corporation can be a full time job. It’s not something you do haphazardly, on the fly. There are long term tax and legal ramifications for everyone involved. So, it is important to get it right. Grantspace.org, Boardsource.org, snpo.org,  and Foundationcenter.org are great resources to find out what you will be getting into before you start.

So, when should a band consider becoming a non-profit corporation?

In my opinion, Christian bands might consider becoming a non-profit corporation if:

  • There is someone in the band who can do all the work themselves – like a CPA who specializes in nonprofit accounting.
  • The band is forming a ministry that will focus on fundraising for a cause.
  • If the band is promised a large gift of $5,000 or more only if they become a nonprofit.
  • Band members are donating large enough amounts of money to the ministry as to justify the extra expenses with individual tax savings. Most often, band members are better off to take business losses at this point as a partnership.

If you do decide to start your own non-profit corporation, here’s the best book I can recommend:

How to Form a Nonprofit Corporation (How to Form Your Own Nonprofit Corporation)

You should read this even if your hire an attorney to do the work for you because it will give you a good understanding of the process and how it affects you in the future.

There is another way…

It is called fiscal sponsorship. In the non-profit world fiscal sponsorship means a non-profit organization adopts your organization. In the Christian world it means you are sponsored by a Church. Donors are able to give to the Church and take a tax deduction for the gift. They are also able to designate that the money goes directly to the band, since the band is one of the ministries of the church. If you really need non-profit status, talk to your Pastor – see if this could work for your band. You’ll save headaches and a lot of cash if you can come under the Churches authority and structure. I do not recommend that every band should be sponsored by a Church, but it is a good option that works well for many bands.  Be discerning, get the most information you can, and seriously pray about it for your band.

If you decide that forming a non-profit corporation is the right business structure for your Christian band, please set up the business structure and file all the forms correctly. LegalZoom can help walk you through the process.

Please note that I am not an accountant or attorney. You should consult your tax advisor and get sound legal advice before attempting any business structure for your band.

Hope this helps! Please leave a comment about your experience with the business structure of your Christian band.

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