If your nonprofit is growing and you’re wondering what the best way to structure it to enjoy sustainable growth, our nonprofit lawyers are here to help. Below, we answer some of the most common questions our attorneys get surrounding the topic of expanding a nonprofit organization. From franchises to multi-site churches, we cover a high level view of the topic, but remember, this can’t substitute legal advice for your unique situation. If you’d like to speak with a member of our legal team, contact us and we’re happy to get a conversation on the calendar.
Can nonprofits have franchises? Can nonprofits have affiliates?
If you’re wondering if you can “franchise a nonprofit,” the answer is no, but you can still accomplish your goal. There is a more cost effective and compliant way to go about having other people start different locations of a nonprofit. Create an affiliate model instead. You can still provide training to those affiliates and allow them to use your nonprofit’s name and branding. Some nonprofits with affiliates even keep a record of all their affiliates on their main website to help them reach new people. Keep in mind, it’s prudent to still have safety and quality standards in place for affiliates to ensure the program is consistent and safe no matter where it’s being offered. We helped Rock Steady boxing with this challenge, and would be happy to advise on creating an affiliate model, and how to ensure standards across affiliates. If you’d like assistance creating this model, reach out to our experienced nonprofit legal team for assistance.
How can I structure a nonprofit to have local chapters?
There are a few ways to go about structuring a national nonprofit to have state or local chapters, with pros and cons either way. First, if you’re looking to start a local chapter of an existing organization, reach out to the original organization to learn about the process of doing so. If you have a nonprofit and someone has approached you looking to start a chapter in another city or state, keep in mind that no matter which route you go, you’ll need solid policies in place to do so effectively.
You’ve likely heard of all kinds of membership-based nonprofits that have local chapters, which is especially common for organizations like trade or professional associations. Remember: when we say “members” in this context, we’re not speaking about donors or any people who use your services. We’re speaking about people who have voting rights built into your corporate documents. There’s a lot of confusion around the topic of voting members, so check out our earlier article to help clarify if you have questions.
But tax-exempt organizations that don’t have members can also have chapters in other locations. Depending on your goals when expanding into new areas, you could create an affiliate model that allows people to start a branch of your nonprofit. See the section above for more information about affiliation.
In many organizations that have locations in different states, each organization has its own 501c3 status. The original nonprofit may offer help and guidance in the process of creating the organization, as well as sharing things like training and brand assets. If you’d like advice on the best way to structure your organization as it grows, contact us to schedule an initial consultation.
What’s the best way to legally structure a multi-site church?
If your ministry is growing, there are multiple ways to go about structuring a multi-site church. Some churches fiscally sponsor new ministries or churches in their infancy to help them get started. This allows the new organization to collect tax deductible donations before obtaining their own 501c3 nonprofit status. Essentially, the original church acts as an incubator that helps provide some oversight while the new church or ministry is getting started. This relationship is a legal relationship, so having a solid fiscal sponsorship agreement in place is a must. If you’d like assistance creating a fiscal sponsorship agreement, let us know.
If you have a multi-site church and the newer churches or ministries are ready to stand on their own, it’s entirely possible to have them apply for their own 501c3 status. This doesn’t mean you can’t share resources, training, etc. Even if your locations are each their own nonprofit organization, they can still collaborate. We helped Soma Church with establishing two additional locations as their own 501c3 organizations. This often happens when the church branches have grown to have their own staff, goals, and resources to be more independent.
The middle ground between fiscal sponsorship and each location having their own status is to have the locations operate as different locations of the same church. In this arrangement, all of the locations are under the 501c3 status of the original church. They could each have a campus pastor, but there’s a high level of communication and collaboration between each location and the main campus. This arrangement works if the original church wants more oversight, but the fiscal sponsorship arrangement wasn’t ideal for whatever reason.
Each situation is different, so if you’d like our experienced legal team to help walk you through your options and find one that’s best for your church, let us know.
How can I combine forces with other nonprofits?
While they get a bad rap, mergers can actually be a great way to combine forces with other nonprofit organizations. If a smaller nonprofit is struggling financially, a merger with a more stable organization can provide much needed assistance and structure. Or, if a nonprofit is in jeopardy of closing its doors for good, a merger can be a way to allow some staff to stay employed and ensure the assets are used for a great cause. There are several scenarios where a merger is truly the best option to ensure the target population gets served sustainably and the organization can thrive. If your nonprofit would like assistance with the legal process of a merger, feel free to reach out and we’re happy to discuss your unique situation.
If you’re looking to collaborate on a more one-off basis for a certain event, program, or project, a joint venture might be a better fit. A joint venture also allows for a piece of extra flexibility in that your nonprofit could enter a joint venture with either another nonprofit organization OR a for-profit organization. However, joint ventures have a start and end date. If you’d like a way to create a sustainable collaboration that isn’t a full-blown merger, a partnership is likely the answer. Partnerships can especially be useful in the case of attracting foundations and other large funders, who often like seeing formal collaboration between nonprofits. A great partnership should be helpful to both organizations: whether it’s providing more resources, expanding a geographic area of service, or providing additional services or expertise.
Growth can be exciting, but it can also bring a myriad of challenges. Prepare your nonprofit for growth by ensuring you’ve structured it for success. If you’d like an experienced attorney to advise on how your nonprofit can restructure or collaborate with another nonprofit, let us know. We’ve helped over 1,000 nonprofits nationwide and would be happy to help.
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