As you’re assembling your non-profit board of directors, your mind may naturally turn to who holds the power and actually owns this thing. After all, you’re the one starting it, so it’s yours, right? Not exactly.
The non-profit business entity represents you and your values, not to mention your hard work and maybe even your money. It makes sense that you might be protective of certain elements of the business. Here are four ways to clarify who is entitled to what and how you might mitigate any questions and concerns that come from your board of directors.
The first and most important detail to consider in the world of non-profit business is simple: there is nothing to own. There are no stocks or profits. Instead, control is vested in the board of directors and assets are owned by the corporation. You can’t expect to sell the organization and gain a profit. If you choose to leave, control generally reverts to the board of directors.
Anyone who is putting assets into the organization needs to clarify their intent. This could be as simple as a director donating equipment or more nuanced, such as a founder contributing intellectual property. If the asset situation is high-stakes or unique, consider consulting with a non-profit attorney to ensure it’s handled appropriately.
It’s very common for the founder of a non-profit business to use personal money to get started. This is known as seed money. We’ve seen ugly situations arise when a founder’s intentions for that seed money weren’t clarified right from the start. If you’re contributing seed money, clearly state your expectations: is it a gift? Do you expect to be repaid? When you’ve made your statement, make sure that your board witnesses and approves the agreement.
It’s best to be realistic when starting a non-profit business entity, which means accepting that you might not always be there to lead it. A transition of power is not always easy, but it can be made more comfortable by engaging in succession planning early in the process. The sooner you and your board of directors are all on the same page, the better. There are a number of ways to plan for succession; here are a few pointers:
- Establish a clear communication plan with your board. This means they know you are talking about transition, that you are identifying key players in the transition, and that your wishes are upheld when the time for transition comes.
- Consider bringing in a change management expert.
- Set a clear, specific timeline.
- Identify areas for future training.
- Commit yourself to onboarding and assure your team you will be there when the time comes to transition.
Discussing control issues can be difficult. People have a tendency to feel uncomfortable when confronted with such a sensitive topic, which is often how governance mistakes blossom into big problems. As you will find, however, these kinds of conversations happen often as a leader. It’s up to you to lay solid groundwork and be prepared when the time comes.
The good news is that a lot of difficulties can be solved simply by planning from the very beginning. We’re passionate about helping non-profits get off the ground and achieve long-term success, which is why we created a free download to share the lessons we’ve learned over our years of seeing non-profits succeed and fail. Get your copy now: How to start a non-profit organization.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors about significant gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.