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Old 12-13-2005, 04:59 PM
Rick Rick is offline
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Default Can non profits have a "for profit" component

I am the owner of a non profit firm. Recently, I had an idea to raise money for the firm through starting a for profit initiative (starting a entrepreneurship summer camp for students). I was wondering if it is okay if I invest money from the non profit into funding this for profit initiative. Has any law been violated here ( I haven't done it yet)? How does ownership work if I say invest $3000 of non profit's funds into the business and I invest 1000 of my own money?
In summary: I wish to add some additional funding to my non profit by starting a "for profit" initiative. However, to reduce my personal liability, I was thinking of maybe investing some of the non profit money into starting the for profit (then parts of the company would be owned by the non profit?). How does this work? Can this work?
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Old 12-13-2005, 11:48 PM
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Ooooh... That sounds very dodgy. Diversion of funds. Sounds illegal to me. But you had better check with your accountant and make sure he really does know.

If your funds come from donors then I'm certain they would want to know what their money is being used for. Setting up a business is probably not their original intention, but they may be persauded if they see it's useful. But check the legalities first.

Having access to funds doesn't automatically confer the right to use them as you wish. If it's your money it will be different but your tax status will be altered anyway.
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Old 12-14-2005, 01:50 AM
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I just asked a question. No, nothing has been done yet. I was just curious if a non profit can invest in a for profit and use that to raise funds.

The donors are all companies that want to get advertising for the donations. The business (of which I thought could be a fundraising tool) is along side what the non profit would do anyways so no disagreements.

And we're not a charity, we're a business mentorship group and our funds come primarily from membership fees. (we're not in US)
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Old 12-16-2005, 05:58 PM
vangogh vangogh is offline
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I'm not sure how or if it's workable. I did once work for a for profit company in the past that started struggling and was purchases by a non-profit. I wasn't working there at the time so I don't know how the business was integrated into the non-profit. i think they continued to do business as a for-profit though. Then again they were and I think still are losing money so maybe the issue was moot.

I think a business lawyer would be the best person to ask. The laws might be very specific to where your business is located.
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Old 12-16-2005, 07:28 PM
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The "non-profit" needs to make money, or else it doesn't survive. It's also OK for a non-profit to have "profits." What is done with the profits is the sensitive issue.

For instance, Goodwill Industries... They have products, services and retail stores and make profits. What do they do with the profits? The use the profits to fund other training and services. They don't use the profits as regular business does.
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Old 12-16-2005, 07:30 PM
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I've been interested in starting a similar service. There is a great organization built for this mission. Check www.nfte.org The National Foundation for Teaching Entrepreneurship.
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Old 12-19-2005, 02:28 PM
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Yes. In fact non-profits can earn up to 10% (I believe) of their operating income (donations etc.,) from business or for profit enterprises, without fear of penalty from the IRS.

Kent Capener
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