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Re: non-profit status



In a message dated 1/8/99 8:46:02 AM Eastern Standard Time, HMSTDFRMS@aol.com
writes:

<< We have been considering incorporating as a non-profit business (that
pretty
 much describes us anyway!)   
 I would appreciate hearing from anyone who has had experience with this.
What
 are the possible risks as well as benefits? >>


In response to this and an earlier inquiry about establishing a non-profit
corporations, here are some thoughts from a Massachusetts attorney (me):  Keep
in mind that the rules governing organizational form are a matter of state
law.  Thus, what works for a farm in California won't necessarily apply to a
farm in New York.  Also, most people do not realize that "non-profit" and
"tax-exempt" are not synonymous.  "Tax-exempt" is an IRS designation given to
certain types of non-profit organizations.  The designation is subject to
stringent, sometimes contradictory (shock!) rules.  Without getting in to the
details, it is safe to assume that most CSA operations do not qualify for tax
exempt status.  Notable exceptions are for CSAs which serve primarily
educational or charitable functions (as interpreted by the IRS).

With regard to the risks and benefits of forming a non-profit, it is somewhat
difficult to answer in the abstract.  The CSA where I am a member considered
forming a non-profit corporation for the purpose of acquiring land and raising
money (our thought was that people would rather donate to an organization than
an individual).  After some informal research, I found few examples in MA in
which a CSA created a non-profit entity.  The example I remember best is
Mahowie (sp?) Harvest CSA.  They formed a non-profit land trust for the
purpose of holding title to their land.  A separate entity was formed, I
believe, to manage the CSA business.

Unless you are trying to accomplish some specific objective (like holding
title to land or a conservation restriction on the land or raising funds), I
suspect most CSAs can more easily operate as sole proprietorships,
partnerships or even as corporations.  Forming a non-profit (or for profit)
corporation might be beneficial for CSAs operated by core groups that either
employ a farmer or contract with one (or several) for their produce.

The benefits of incorporation are generally that you can limit your individual
liability.  Incorporation might benefit farmers with significant personal
assets or who have accumulated substantial debt in their farm operation.  If
your sole motivation is to protect your personal assets if you get sued by
someone injured on your farm or by your produce, you are better off, in my
opinion, spending your money on adequate insurance.

Mike Bainum