by Kevin Dean, President & CEO, Tennessee Nonprofit Network
As a nonprofit founder, you’ve poured your heart and soul into your cause. You’ve toiled away at crafting a vision and building a nonprofit organization from the ground up. You’ve begged for money from everyone you know. You’ve fought ridiculous battles to make it happen. You’ve dealt with the paperwork involved with establishing the your 501(c)3. You deserve an award for your commitment to this cause!
But here’s a surprising fact: you don’t actually “own” the nonprofit you founded. That’s right, founders of nonprofits relinquish ownership in favor of a unique structure that prioritizes the community it serves. Once you create a nonprofit, it becomes property of the community, and you don’t have legal rights to its name, mission, or direction.
Look at it this way: founding an organization is almost like parenting. You birthed a child, nurtured him or her and shaped your child to be the wonderful person he or she is meant to be. But at age 18, your child is a legal adult. They are their own person and they are not legally under your control. Sure, you can still provide guidance, love, and support, but your baby is now an adult out in the world.
This is like the work you’ve put forth to get the organization off the ground, but at the end of the day, that child is its own person.
Here’s why nonprofits can’t be owned by the person who founded it:
- Public Benefit, Not Private Gain: Nonprofits exist to address social needs, not generate profit for individuals. They’re granted tax-exempt status based on this commitment. Ownership by a single person could jeopardize that status and potentially lead to personal enrichment, undermining the core purpose. (So don’t ever ever say you’re the owner.) This also undermines the legitimacy of all nonprofits and creates confusion for donors, legislators, and others who may not understand the 501(c)3 tax exemption.
- Property of the Community: The organization’s assets and resources belong to the community it serves. The founder acts as a steward, not a proprietor. Think of it like a public park – no one “owns” the park, but everyone benefits from its existence.
- Board of Directors: The Stewards: The legal authority over the nonprofit rests with the board of directors. This volunteer board ensures the organization adheres to its mission and manages resources responsibly. They are accountable to the public for the nonprofit’s actions.
So, what does this mean for founders?
- Founders Can Be Fired: While founders often hold leadership positions, they serve at the pleasure of the board. The board can replace the founder if they feel it’s in the best interest of the organization.
- Changing Bylaws? Not a One-Person Show: The organization’s bylaws, which dictate its operation, can’t be unilaterally changed by the founder. Amendments typically require board and potentially even member approval depending on the specific bylaws.
- Board of Directors: Even with the founder at the helm, Tennessee law mandates at least four board meetings annually and a minimum of three board members. This ensures transparency and collective decision-making. Boards are also the people financially responsible for the organization and can be personally responsible if the organization becomes insolvent (which is why D&O insurance is so important!).
Being a founder of a nonprofit is an incredible privilege. You get to champion a cause and make a real difference. While ownership isn’t part of the equation, the impact you create through the organization becomes a lasting legacy.