Know-How Exchange : Strategy

A for profit entity is easier to set up and maintain. I helped found a nonprofit and the 1023 -- even in its revised "quick" form is a beast of a document. You also may not be approved as a nonprofit-- it typically takes a year for the IRS to slowing churn thru it. They look carefully at nonprofits-- making sure they qualify for that status.

Running as a sole propriotor is easiest.

Tax wise- your daughter as the executive director of the nonprofit would have to pay taxes on her individual earnings. In a for profit entity, its the same thing.

The IRS expects a nonprofit to be profitable and make money. Nonprofit does not mean little or no profit.

Carol
Sell Well and Prosper tm

Lynn,
I agree with what Carol says above, but....

If you daughter truly wants to help others, sometimes getting things done costs more than a single person can finance. The Not for Profit status allows her to ask others, businesses, and other not-for profits for assistance - via a tax deductablel contribution.

Not-for-Profits can also attract high level Board of Director members. These folks can help open the door to places your daughter might not be able to handle on her own - ie corporate boardrooms, banks, etc.

My only suggestion is this, if you daughter develops materials, process documentation, ect. She should copyright the material under her own name outside the not-for profit. Incase she ever changes her mind about wanting to make money, owning the copyright to the materials gives her a source of income.

A few more thoughts.

As a nonprofit, you will not automatically attract a star studded board. There is huge competition for both the donation dollars and plenty of causes that ask big companies for board presence. As a board member, you are personally exposed and responsible for the nonprofits ethical performance. They will require you to provide director's insurance to protect them.

Having a board is a big headache as well-- especially in a nonprofit. Everyone has their agenda-- you'd think they'd be united for a common cause-- and they are-- but in it for their own slant. Do you even want a board?

You are also not guaranteed donations or grants. Again, there is huge competition for this-- and a company only has so much to give. Grants are beasts in documentation as well-- and you must file extensive reports to get the money and after assuring the dollars were spent as allocated. Sponsorships do not have the documentation-- and yes, they can write it off as a donation-- but most of the time they take it as an advertising expense which is the same if you were a for profit.

Really, Randall is so right. Do your business plan and these solutions will probably just bubble up for you.

Sell Well and Prosper tm