Nonprofit Genie (FAQs) | Nonprofit Enterprise

Not necessarily. nonprofit organizations are clearly prohibited from engaging in ongoing commercial or other activities which profit an individual or outside interest; however, all nonprofits should be profitable, or you would be out of business and unable to pursue your charitable mission! In general, nonprofit organizations may operate "business" ventures to the degree that those ventures are directly related to the pursuit of the social mission of the nonprofit. They may even operate out and out for-profit ventures as subsidiary corporations-but need appropriate legal council every step of the way, since each situation is different and has different implications for the sponsoring organization. You should always be sure to secure solid legal advice if and when you are considering any of these types of ventures.

There is no single law book regarding this process. In general, the legal "code" for nonprofit enterprise consists of existing regulations as well as a series of IRS private letter rulings over the course of the last 30 years. Each of these is specific to the original case and jurisdiction and is not pertinent to every other situation that might arise for a nonprofit executing these strategies. However, they do give a general indication as to how the IRS views various types of nonprofit business or job creation activities.

Many communities have nonprofit resource centers that may have libraries with helpful guidance on this issue. For example, The National Economic Development and Law Center offers a free document [PDF] regarding many of the legal ramifications of creating a business venture out of a nonprofit.  Other resources may be found on our "Friends of the Family" page. The key point to understand is that each organization is different with different conditions. Again, anyone considering engaging in community wealth creation and nonprofit enterprise should be sure to consult informed legal counsel in order to best understand how to structure the effort and limit the liabilities to the sponsoring organization. Don't take the information on this Web Site or any other resource at face value. Talk to an attorney!!

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