The ”Non-Profit” Corporate Model

So you have heard the term before, but do you really know what a non-profit organization is? There are legal definitions, including 26 types of non-profits recognized by the IRS, and there are common perceptions of what people mean when they refer to an organization as non-profit. Let's start with perceptions.

Legally, a non-profit organization is one that does not declare a profit and instead utilizes all revenue available after normal operating expenses in service to the public interest. These organizations can be unincorporated or incorporated. An unincorporated non-profit is somewhat rare for while it can be given federal tax-exempt status or the designation of being a 501(c)(3) organization as defined by the Internal Revenue Service, it does not enjoy the legal protection a corporation provides. When a non-profit organization is incorporated, it shares many traits with for-profit corporations except that there are no shareholders.

When starting a non-profit corporation, the organization must file articles of incorporation with the state in which it resides or decides will be its jurisdiction for legal purposes. This is the same process a for-profit corporation must follow. Each state has various rules and regulations, but most require officers of the corporation, a board of directors, by-laws and annual meetings. Most states also require non-profit organizations to register with state charity bureaus or other agencies and adhere to reporting requirements particularly involving fundraising operations.

When a non-profit corporation is given tax-exempt status, it is exempt from paying federal corporate income tax. While these types of organizations also are often exempt from paying state and local sales tax, property tax and taxes on other assets, this is not always the case as states have different rules. Tax-exempt non-profits also can benefit from lower postal rates.

Non-profit organizations have paid and volunteer staff, but employment taxes and federal and state workplace rules are generally no different than those imposed on for-profit organizations.

A non-profit organization can have members, can offer products and services, will need revenue, should market itself, and must be concerned about customer satisfaction whether in those assisted or those who contribute donations in support of operations, programs or services. It is a business that must serve the public interest and it will succeed or fail as any business will, depending on how well it is operated.

Most, if not all, state soccer associations are non-profit corporations incorporated in state where they were organized and located.  The Unites States Youth Soccer Association is also a non-profit corporation.

The board of directors of a non-profit corporation is legally and financially responsible for the conduct of the organization. It is not a passive role but rather one that must be active for the good of the organization and for reducing liability of the individual directors. It is not just for-profit corporations that are under ever increasing scrutiny for ethical operations

State laws may establish a minimum size of a board and in some states; new corporations can have a board of directors consisting of as little as only one member who fulfills all roles. As the corporation grows, others are added. As a general guide, non-profit corporations should have at least five or more members who are related only in their commitment to the organization.

The varied talents and contacts of a board from diverse backgrounds can help an organization grow. A good board member is one that brings unique ability and perspective to a board and takes an active interest in the organization. Having a "well known" board member for the sake of their name can be more damaging than beneficial. Having board members who are connected in the community, are representative of your constituency and truly want to help the organization succeed are a better fit.

In most youth soccer associations, the members of the board are elected by the member organizations that belong to the association.  The requirements for board membership are wide and varied and without any common thread beyond a desire by the candidate to be a part of the governance of youth soccer in the state.  A wide variety of persons are attracted to service on a state board – from enthusiastic soccer parents who want the sport to run as they envision it to current and former adult players to long time veterans of local club administration who kids have moved on and who wish to stay involved.

Each board is different and changes as the members come on the board and move off.  Each member brings their own perspective and objective to the board table.  This differs quite dramatically from the for-profit model where board members are elected on the basis of their experience in business and their connections with in the market.

The board is organized under officers and through committees. This is a practical and effective way to provide governance of most organizations and helps to involve all board members. Traditionally officers include a chair or president who presides at meetings and provides management of the board, a vice-chair/president who presides in the absence of the chair, a treasurer and a secretary. The treasurer and secretary positions may not be needed as today these roles are often assigned to staff of the organization.

Committees of the board can include a budget or finance committee, tournament committee, development (fundraising) committee, personnel committee, program committees, nominating committee (future board members) and other areas depending on the needs of the organization. Often smaller non-profits may have just one or two committees or create temporary committees based on present needs.

The operation of the board and of the state association is determined by the Governing Documents which include the “Articles of Incorporation” (legal document filed with state) and By Laws which define the structure of the organization and the general method of operation.  These documents typically require approval of the membership for their adoption and modification.

The programs and services of the association are typically governed by “State Rules”, “State Procedures”, “State Policies” or other similar documents adopted by the Board of Directors.  Such documents are transitory in that they evolve over time and reflect the conditions, goals and objectives at the time of their adoption.  Unlike for-profit corporation policies and procedures which are often reviewed by legal counsel, non-profit Governing Documents less structured and often allow for ambiguities (loop holes) that complicate the daily operation of the association.  Similarly, policies and procedures for paid staff are less developed than in the for-profit sector.

However, it is worth note that non-profits account for a significant number of the corporations active in the United States today.  They are a vibrant and necessary sector and are responsible for most youth organizations.  Many like the YMCA and Boy Scouts are in their second century of offering service to the youth of America.