Misconceptions have run the gamut from the time I was told that we’re not a "real 501c3". (The IRS begs to differ);
To "but why don’t you want to make any money?" (While our salaries may be public information and board-determined, employees of non-profits do receive a salary);
And to the most recent -"well, the NFL is a non-profit and they steal billions of dollars in profits every year so it must be really easy to get 501c3 status". (I can’t speak for the NFL but I do know it took us a tremendous amount of applicant paperwork and filings, lots of expensive legal fees and about 2.5 years to get our status approved. Whether or not you want to call that easy or hard, I guess is a matter of opinion.)
Here is what I’ve learned about directing a 501c3. (I am by no means an expert on tax exempt status- the below is merely my personal experience in directing one, and to answer some curiosities that our students, parents and community members may have. I consult with attorneys and accountants regularly in order to manage our school, and anyone interested in tax exempt status needs to do the same.)
First of all, being a non-profit does not mean that we don’t, or can’t, charge for our services and classes. The lights need to turn on, folks and PSEG ain't free. It does mean, however that our function needs to benefit the community:
“You can start a nonprofit to aid a specific group or class of individuals — everyone suffering from heart disease, for example, or people living below the poverty level — but you can't create a nonprofit for individual benefit or gain. But just because you're working for the public's benefit doesn't mean that you can't receive a reasonable salary for your work. And, despite the name "nonprofit," such an organization can have surplus funds — essentially, a profit — at the end of year. In a for-profit business, the surplus money would be distributed to employees, shareholders, and the board of directors; however, in a nonprofit organization, the surplus funds are held in reserve by the organization and aren't distributed.”
-Understanding Non Profit Ownership for Dummies.
http://www.dummies.com/how-to/content/understanding-nonprofit-ownership.html.
Being a 501c3 also means that our organization is not privately owned and any equity within the organization belongs to the organization. A founding director of a non-profit will often use the term ‘owner’ to convey that they have a vested interest in the well-being of the organization, or to convey that they have the authority to make decisions regarding the business, but Integral Ballet is ‘owned’ by the community, and I am a hired employee.
By the same token, being a 501c3 means that all of our decisions regarding policy and procedures need to be approved by the Board of Directors. I am not at liberty to make things up as I go along, nor can I excuse people from policy when I feel like it. We are as subject to our rules and bylaws as everyone else. We have to meet every 3-4 months to discuss everything going on. It's bananas trying to fit that in with full time teaching and full time administrative schedules with two director/teachers and the entire board - but it's so worth it.
Being a 501c3 does not mean that we cannot nor should not collect unpaid and overdue balances. In fact, it means just the opposite. I am still shocked at the frequency in which folks use the studio’s non-profit status as an excuse to not pay their bill. It’s ironic, since fees owed to the school are not in my personal interest, but rather that of the community’s. I actually consider myself even more accountable for that which is owed to the studio. Frankly, if I were a business owner and you owed me $5, I’d very likely forget it about it or not want to waste the time and energy on collecting – but since we are a non-profit, it is not my $5 with which to mess around– it ultimately belongs to my students and the community benefited by the studio.
Being a non-profit organization does not mean I need to produce my books, my staff’s salaries, operating bills and margins for your perusal at your convenience (yes, people do ask for that). It does mean that all of our financials and 990 tax forms are available to the public. Please feel free to download them from the IRS website.
Being a non-profit does not mean staff and employees are volunteers, although as teachers, we do volunteer a lot of extra time. It does mean that our salaries need to be approved by the Board of Directors and can be in line with what someone in a similar role would make in the private sector.
Despite that non-profits are allowed to hire individuals for employment, no individual (or outside organization) can benefit financially (ie, profit) from the non-profit organization. That basically means that the studio cannot be sold. If and when we dissolve, all assets are distributed to a non-profit that serves the same mission.
It also, and in my opinion more importantly, means, that profits earned are not distributed to shareholders or individuals but rather reinvested into the mission of the organization.
Non-profits are generally not able to obtain investor funding. Why would any investor want to give you money if your top priority isn’t, well, money? So sad… BUT, a non-profit can get grants, loans, often times credit, and tax deductible donations. Yay! Private sector schools and organizations also engage in fundraising and I believe are even allowed to accept donations, but they’re not tax deductible.
So why would we go through all of this trouble to become a 501c3?
Very simply, there is an inherent conflict of interest when individual shareholders are able to profit off of students. Nuff said. You cannot simultaneously do what’s best for your students and create the most-possible-profit. I’m not saying you can’t want both, I’m just saying there will come a point, or several, where you simply cannot do both.
Any school that is concerned with the well-being of its students is, by nature, a non-profit organization. I don’t mean to say that privately-owned studios don’t have their student’s best interest in mind. Au contraire; In my opinion, whether or not a director wants to go through the litany of paperwork, the red tape of having every decision approved by a board, or the exposure of their financials in order to obtain IRS recognized status matters not. Most good schools operate as non-profits whether or not they realize it. There is simply never enough money in a school (especially in the performing arts) for all of the programs, equipment, supplies, scholarships, etc. that would be beneficial to students. I can’t imagine any quality teacher ever saying, ‘Ok, guys, we earned some extra cash this year and there is simply nothing that needs fixin’ around here so let’s divvy it up and have a ball.’ No good teacher ever said that, ever. Instead, they say things like, ‘Oh good, we can finally replace that broken DVD player.’ Or, ‘Oh good, Mrs. So & So applied for a scholarship and now Little One will be able to continue his classes’. Or any number of necessary things.
It’s also about transparency. Our board is comprised of parents, staff, alumni, community members and third-party professionals. Thanks to their involvement - and our meeting minutes - our student body and student families know the direction we’re going in all the time. They know our policies and procedures. More importantly, they know that their feedback is being heard because it has to be heard.
Here are some resources on non profit status:
http://www.dummies.com/how-to/content/understanding-nonprofit-ownership.html
http://john.onolan.org/what-it-means-to-be-non-profit/
https://en.wikipedia.org/wiki/Nonprofit_organization