I. Introduction
Now & Then Financial Services is a financial services company founded by Jason Mleczko, LaSand Kinnaird and Rebekah Ostby. The company, which is headquartered in Harrisburg, Pennsylvania, seeks to provide financial management products and services to new income earners such as recently graduated college and university students. Based on the company’s mission and goals, target market to be served, and inherent risks in establishing and running a start-up business, Now & Then Financial Services has decided to incorporate as a non-profit corporation.
A non-profit corporation is defined as a business type where the purpose of the business is to achieve a goal other than making profits and distributing those among its owners or shareholders (IRS, 2016). Contrary to the name, non-profit corporations can and do make profits. However, unlike a “for-profit” business; non-profit corporations are forbidden from distributing its profits to its owners. Instead it is required to invest any profit made back into the corporation to help it achieve its goals. Most non-profits are formed to achieve a specific benefit for the public, or a particular group within the public. According to the Internal Revenue Service (IRS), there are seven types of non-profit corporations, such as charitable organizations; trade or professional associations; and social or recreational clubs. Charitable organizations are the most common. The IRS defines a charitable organization as one that is established and operated to “fulfill” a charitable, educational, scientific, religious or literary purpose (IRS, 2016).
Now & Then Financial Services was started with a vision and goal of helping new income earners manage their finances at the beginning of their careers so to avoid common problems that often lead to unmanageable debt later on in life. Most often these are members of the community that have less wealth and susceptible to aimlessly spending whatever funds that they do earn. In short, Now & Then Financial Services’ goals are: in the short run, to help every new income earner organize their income, pay their bills, save, and learn financial management best practices through its line of affordable financial management products and services; and in the longer run provide the products and services that will guarantee that they have the chance of a debt-free and flexible financial future. Accordingly, its best option was to incorporate as a charitable organization. As a charitable non-profit corporation, Now & Then Financial Services is presented with a number of benefits and advantages in terms or taxation, funding, and liability issues.
II. Advantages
A. Taxation
As a charitable non-profit corporation, Now & Then Financial Services will be exempt from having to pay federal taxes. Practically speaking what this means is that the company will avoid being taxed on any income that it earns as long as the income is related to its stated mission (Pakroo, 2013). This will allow it to reinvest those funds back into the company to further assist it in achieving its goals. In addition to federal tax exemption, under Pennsylvania law, as a registered charitable organization, Now & Then Financial services is also eligible for an exemption from state sales tax (PANO, 2016). It might also be eligible for exemption for any Harrisburg local taxes.
B. Funding
As with any non-profit, Now & Then Financial Services is limited in the ways its can acquire or raise money to operate. It cannot sell stock or otherwise give equity for private investments. Instead it must rely on the donations for individuals, organizations and corporations who rather than expecting a return of investment hope that the business will provide a social return (Pakroo, 2013). Naturally, seeking donations is hard work, however, being a charitable organization provides some benefits, First, as a tax exempt entity, the company can accept donations that are tax deductible for the donor. This is to say that donors can deduct their contributions from the taxes which lowers their tax obligations. Practically speaking, this provides an incentive for people to make contributions to the company. Second, in addition to donations, charitable organizations are permitted to seek funding from the government as well as from private grants. What this means is that the company has two other avenues to raise income. Moreover, funds received from either source do not have to be repaid as long as they are used under the terms and conditions of the grant or according to the stated mission of the company.
C. Liability
Liability protections, should be an issue of concern for any business entity even a charitable non-profit corporation. Fortunately, under a non-profit structure, the founders of Now & Then Financial Services have limited liability. More specifically, the owners are not liable to the debts and obligations of the business. Accordingly, in the case that someone wants to sure the company, they are only entitled to make a claim against its corporate entity rather than its founders. Furthermore, the companies limited liability does not just cover the founders, but also provides protection for board members, officers and employees.
III. Disadvantages
Despite the benefits that a charitable non-profit corporation structure offers Now & Then Financial Services, it is not without is disadvantages, namely formation,
Formation
Forming a non-profit corporation is one of the more complex procedures in business formation (PANO, 2016). Those formalities include registration with the relevant federal and state authorities, payment of filing fees, drafting and filing of articles of incorporation, drafting of by-laws, obtaining all necessary licenses and certification to perform the stated work, and choosing directors. It should be noted that in Pennsylvania three directors are required upon the establishment of the non-profit. In addition to the formalities need to establish the company, there are other formalities that must be completed to obtain tax-exempt status. Lastly, even after completing the startup formalities; the company must satisfy continuous comply with a number of IRS standards such as maintain that none of the business’s funds go to a particular person, in order to maintain its tax-exempt and non-profit status.
Funding
As stated above, the company can only raise funds through donations, grants or government assistance. While there is great diversity with these three income fields such as gifts, corporate sponsorships, endowments; gaining income in this manner will require considerable time and effort for fundraising activities, that will take staff away from focusing on the mission and goals of the company.
Political Activities
While the main goal of Now & Then Financial Services is to help new income earners that are less financial secure manger their money in a manner that leads to long-term financial stability, as a charitable organization the company is forbidden from either lobbying for policies and laws that are helpful to the target customer (Pakroo, 2013). Moreover, the laws also require that charitable organization refrain from making any political contributions. Accordingly, Next & Thin Financial Services are limited in the goal to “to good” by their customers strictly through the products and services that they offer.
IV. Conclusion
In consideration of the totality of circumstances surrounding the establishment and operation of Now & Then Financial Services, it is clear that the charitable non-profit organization type provides the founders with the broadest range of tools to accomplish the goals of the company while also providing them with liability protection as wells as access to multiple revenue streams.
References
Internal Revenue Service (IRS). (2016). Charities and non-profits. Retrieved from https://www.irs.gov/Charities-&-Non-Profits/
Pakroo, P. (2013). Starting and building a nonprofit: A practical guide, 5th ed. Berkeley, CA: NOLO.
Pennsylvania Association of Nonprofit Organizations (PANO). (2016). Starting a nonprofit in Pennsylvania. Retrieved from www.pano.org/Support?Staring-A-Nonprofit?
