Nonprofit work can be challenging and rewarding, but it isn’t always the right way to run your organization. Sometimes, a for-profit business model can work better as an organizational tool for accomplishing your goals, and sometimes conditions change so the original mission you set for your nonprofit structure is no longer as useful as a private or corporate structure could be. The classic example of this is when a nonprofit research team invents a new device or drug that can be patented. During the research and development stage, you may have depended heavily on private donations and government grant money to keep afloat, which required a nonprofit filing status. Once the new invention has reached the patent stage, however, you might be ready to switch over with your existing organization and go into business manufacturing your development.
Why Make the Switch?
Ordinarily, nonprofits that have either outlived their purpose or radically changed their focus just go out of business and are replaced by a different entity that operates under different regulations than its predecessor entity. If you run a charitable aid group that feeds the homeless, for instance, and eventually you get permission to build a shelter or low-income housing complex in your city, it might be worth the trouble of officially closing your original nonprofit and opening another entity, which may or may not have a different filing status. This helps keep onerous paperwork to a minimum and prevents potential conflicts of interest, as one organization passes out of existence and is replaced with another, wholly different, one.
Sometimes, however, there are things you want to preserve about your old nonprofit that are lost if the entity goes under entirely. Patents, for example, may be impossible to transfer from the nonprofit you head to the business you just started without arranging an inside sale from one to the other. To say the least, a sale from one entity you control to another is apt to raise eyebrows among regulators, as this is a common embezzlement method. Something similar is true for registered copyrights, design work you commissioned, and other intellectual property.
From Donors to Investors
Another reason to keep the trappings of your old nonprofit is the professional relationships you’ve built up over the years. Administering a charitable organization is a people-intensive business, and many of your donors may remember you only as the president of the nonprofit they used to donate to. If you can keep the entity’s name, letterhead, and mailing address while you transition into a for-profit business, it may be much easier to approach your former benefactors and ask if they might like to become investors in your new venture. The long relationship you enjoy with them may open many doors a new venture capitalist might otherwise find barred.
Taking your nonprofit organization from its current filing status to a new, for-profit business model can be a long process, and the filing requirements are certainly not light or casual, but sometimes it’s the best way forward for you, your team, and the community you serve.