Good afternoon, everybody. I'm thrilled that you all have joined us where Kheli and Dr. Kheli Willetts will be, will be starting in just a second. But if you all have questions, please just go ahead and put those in the chat. And I and then Kheli is going to go through the presentation and we'll have space for q&a at the end, you know at the end of the presentation today. But just go ahead and like if you have questions that are ongoing, put them in the chat and then we'll get to them over the course of the q&a.
So thanks so much. Good to see you all. Oh, hi, I'm Sixto Wagan he him pronouns. I am the director of the BIPOC Arts Network and Fund. and we're excited that you're here today. I have this is being recorded both for on video and also, we're trying to pull it on otter for transcript. So hopefully that will be available. But I'm going to turn it over to Dr. Kheli Willetts.
Thank you, Sixto. Good afternoon, everyone. I'm Dr. Kheli Willetts. I am Principal and founder of Dr. Professional Development, which is an arts and culture consulting firm, where I specialize in governance operations, programming, community engagement and cohort and executive leadership coaching. And what I'm going to do today is essentially go through the steps that you need, should you decide that you want a five one a form of 501(c)3.
Let me just start and be very clear that it feels like a lot because it is but it's also completely attainable, and it's doable, and hopefully you will find what I'm sharing with you useful. And like I said, if you have questions, if it's super, super important, of course, please raise your hand because, you know, I'm one of those people if I don't ask sometimes I forget, but if you can, please just drop it in the chat and then we can go ahead and do a question and answer period.
Let me go ahead and also offer this caveat. This is not a general presentation. This is for the state of Texas because every state has different rules, even though 501(c)3 is a federal designation, the steps to get to the federal designation is different per state. So what I'm presenting to you is what we're doing here today in Texas. So very quickly, the overview. These are essentially the introduction then I'm just going to briefly talk about the types of nonprofits because I'm sure some folks may have said well, why not a 501(c)4, or you know, are you doing the foundation, and then go over the basic steps that are required before you can even file for the 501(c)3 on the federal level? And Sixto, you know, I'm a de facto New York New Yorker, so if I talk too fast you gotta get me because sometimes, you know, okay, great, thanks. Gotcha. Okay, perfect.
So, the reality of the matter is there are actually 32 different types of nonprofits. Most of them do not fit within the arts and culture space. So the work that we have a tendency to do and those two designations that are most often used within arts and culture are the 501(c)3 , and the 501(c)4. Now, the main difference between C3 and C4 is C4 is largely around community social welfare, but the most important designation is that with C4, you're allowed to lobby, and you're also allowed to engage in political activities. And I want to be very clear if you are a 501(c)3, you should not ever host any political organizations fundraisers of any sort. If they rent your facility, it's fine. As long as it's not as an official fundraiser, it will flag with the federal government and you could potentially lose your 501(c)3 . Now. It may require someone to report you but you know, because I am sure that most of us including myself can think of an organization or museum that we've gone to particularly when someone may have been running for office and they had a little meet and greet. Be very careful. It just want to sort of offer that as a cautionary note.
Now, when you have a 501(c)3 most people think oh, that's for an organization. Well, you can have an organization or you can have a foundation. Now, what's the difference? When it comes to a foundation those are largely funded either by family money or corporate entity? And nonprofits are usually they come from revenue generating donors. There's a space in between let me give an example many of you may or may not know Delita Martin who is a internationally recognized printmaker, who is, you know, lives in the greater Houston area. And she has Black Box Press which is her organization. Recently, she has founded Black Box Press Foundation, and that foundation, she funds artists, she offers workshops. It is different than her Black Box Press organization because that's her personal nonprofit. The foundation is founded with the money because she's had an amazing career. So there is that space as an artist where if you are thinking about how can you pay it forward? Consider a foundation Romare Bearden Foundation who is a was a preeminent black artists, particularly during the Harlem Renaissance. So it is not beyond reason as an artist, a creative or an arts practitioner to have a foundation it's just largely how the money is how the money funds it.
Now, your first step, you need a name. Deceptively simple. Why? Because you have to make sure number of things. Make sure that the name is available in Texas first. So there are a number of ways that you can find out. The first one is the taxable, the Texas tax, taxable entity search. That's where you enter in the name and enter the name in the way that you want it. So if there is a The in front of it, make sure the The is there. The second option is SOS direct name search tool. The fee is $1. I'm not really sure but it's $1. Each time you want to search so my recommendation is to do the first one. However, if you're going to if and when you decide to file your paperwork and you do it online, you're going to need an SOS direct account anyway. But I would recommend doing the Texas taxable entity search. Now if there are reasons where accessing online is a challenge or somehow other preventing you from able to do that. You can send an email with the name but also understand that you're gonna have to wait for a response so they you might send it in two weeks later you get an email back saying that's not available, then you got to send another one again, it's not necessarily the fastest route. The other option is to call and again, I have never called so I'm not quite sure what the turnaround time would be for something like that. But I suspect that you know, depending on the time you call, they may be able to search with you right on the line and of course, you seven they also have 711 for relay services for those that are hearing impaired or for other reasons are unable to use traditional telecommunication platforms. So first you need a name.
So things to keep in mind. I talked about the SOS account. Even if you're not ready to submit I am recommending that you create an SOS direct account. You don't have to pay for the account. It's good to have it for just for any filing of paperwork. But just to get started. You want to make sure that you have it. The second The other thing I'd recommend is search for the name via a web hosting domain service. GoDaddy because that's where you're going to get your website. And so it might be a great name. No one in the state of Texas has taken it. You've done all your due diligence you enter it and GoDaddy and somebody has it because they're not in Texas. So you want to make sure that you also search for it and your domain search but most importantly the last three letters should be ORG. Even if it's a foundation. ".com" is traditionally for for profit businesses. Now, I do know that there were some institutions here that originally had.com At the end of their name they have since migrated to .org But that is sort of the fast way people determine whether something is for profit, or if it is actually if it's a for profit business or there's actually an organization.
Now that you have your name, your mission vision and values. Now, mission and vision, absolutely critical values. Not everyone necessarily has their values. But the first point is your mission needs to be clear and concise. And essentially you're letting people know what the organization does, why it exists and who it serves. Your vision statement is that means now who are we at this moment your vision statement is really your long term goals. What are you? What impact is this organization going to make on the world? It should be inspirational. It's it should be aspirational, it should convey a sense of optimism and hope and what you really want in the future. Now your value statement really is your moral compass. What do you stand for? So presently, this is what I stand for in the future. This is what we stand for. value statement these days are very critical, because there are a lot of funders that are values driven. Your mission might not simply communicate your values. Your vision may offer a peek inside your values, but your value statement sometimes they're called guiding principles. But what that is is your moral anchor. This is what this is what we believe in at our core, which is why we do what we do. So that's what you put in there. Just to go back in terms of your mission statement. The reason why being clear and concise is critical is because your mission statement in a perfect world is something that everyone that's affiliated with your institution can can cite. They can recite it, your staff, your board, your volunteers, your long term patrons because they've heard it enough. So you don't want it to be really long. You want it to be succinct a couple of sentences. Sometimes a single sentence can be incredibly powerful.
The other thing that a mission does is it previews to your community - what your organization does. And, what happens is, sometimes there's this thing called mission creep, and that's what you want to prevent. And mission creep is when your organization starts to do things that is out of alignment or contrary to or has no relationship to your mission. And I'm raising that because when funders, particularly your panelists, and other donors, when they look at your mission and compare it to your programming, or your or the project that you're proposing, they want to see that it's in alignment. They're not going to fund something that seems contrary to not in alignment from or very different from what you're saying your institution is, with your vision statement.
Consider asking yourself these questions when you're thinking about it. How do I want my organization to be perceived? What do I want my legacy to be? How does my statement align with my mission? And the most important thing, don't forget to dream. Do not manage your expectations with your vision statement. This is where you're completely aspirational. You're completely inspirational. Now, if you realize when you look back 2, 3, 5, 10 years later, and maybe your vision has changed. Hopefully you will revisit it when you're doing your strategic plans and you're looking at your documents but when you start to dream, and dream big. And lastly, again with a value statement, not all organizations choose to create a value statement and I would recommend it. If you know organizations if you're part of if you're on the board of organizations that don't have one, have a conversation consider doing it because again, particularly with individual donors, and we're talking about and it is individual donors of all socioeconomic backgrounds. People give money to things they believe it. They might believe in your mission because it makes sense. They may believe in your vision because they can see it but what they'll give money to is what they value. And if what they value is in line with what you value, they'll give you the money. Because oftentimes that is the response you'll get from funders, we really love your organization. We love what you're going but your values are not aligned with ours. And so you want to you want to make sure that you articulated.
So you have your name. You have your mission, your vision and your values. Now you need a board of directors. Federal and state law says that it requires you to have three people that are willing to serve on your board. Now when forming your board, one of the things that you should decide is the kind of board that you want. There are a number of type of boards, but the three most used most often are your fundraising board, your programming board and your governing board. Now I am clear, and I think we've all may have experienced at some point some boards that seem to be just boards. In general, the boards seem to be just bores by default our governing boards they provide oversight for the overall organizational governance and strategic direction of the institution that that isn't general. Now your fundraising board. They're there to help you get money. Their job is to work in partnership with you, and sometimes lead fundraising initiatives donor cultivations occasionally and grant writing haven't really seen it in nature, but in principle, it is part of that process. And then you're programming board. Programming boards can sometimes be tough is a caveat, because the board is also responsible for the development and implementation of programs. Now if you are a organization where only the executive director is paid, and you have volunteer staff programming board makes total sense. Because you do not want a single person doing the heavy lifting. That's that's a lot of work. As I'm sure Sixto can attest to it. is a challenge. And so that's where a programming board then can become helpful.
But there are also things that I want you to keep in mind. First thing is that the CEO or the executive director of the nonprofit works at the pleasure of the board. The board is legally responsible for whatever happens to the organization. There are no laws against the CEO or the executive director from being on the board. But I will I will caution that it may create complications as your organization grows. And also let's talk about the awkward moment where potentially you have a nonprofit, the executive director also has a seat on the board. And maybe the executive director is not necessarily fulfilling their obligations, and the board would like to go in a different direction as a board member theoretically, they should be present for that conversation. But you are talking about them because they work for you. That can become complicated. Especially if and I have seen it and I actually just corrected it. That someone put the executive director on the Executive Council. That means you can't even go in executive session without the person that you want to talk about being in the meeting. So when you're small and getting started very different, as you grow, it can become increasingly problematic. Now many DS do come up serve on the board but they serve as non voting members. So what they're able to do is provide direct insight and conversation with the board. But they can't sway the opinion when the goal is an Executive Session. They can step out, but they are aware and they still have complete participation within that board. Now for foundation which are largely family Foundation's completely different story, with exception to the executive director meaning many family foundations have a perpetual seat for direct blood descendant in perpetuity. You're never they will never go and if you are founding that foundation, I recommend that you do that. So it always stays particularly if it's a family foundation. Because when you don't, you will lose it. And there are examples of organizations that have been founded by people that those founders were subsequently removed from the organization because they did not write in and in perpetuity costs as the founder. So and then, the other thing to keep in mind is that as executive director in many ways, you're also going to be managing the board in many ways. And so you're not just managing the organization. So you're you're sitting at your in the middle between these both both of these entities, and in many ways. You're responsible for both of them in both directions, with very different tasks.
Okay, so you have your name mission, vision and values, you have your board of directors. Now you need a Registered Agent, because the Registered Agent is the person who's going to receive all the paperwork that your organization is filing for nonprofits, not it doesn't necessarily have to be someone different. For for profits, they have a tendency to use a Registered Agent, because there would be some paperwork that the business may have received that they don't want them to see directly like you're being sued, or the nature of the business is where there isn't someone available all the time to receive that documentation to keep people updated, etc. With organizations, particularly with nonprofit organizations, particularly arts and culture ones when they start up. You don't you don't need a third party to do it. It is not necessarily super expensive. For me personally, when I started my business, I was my own registered agent. I don't see anybody in my business but me. That's just me. Some people like a little bit of distance. Again, it's it's your choice, but there is nothing that prohibits you from serving as the Registered Agent.
The next step is that you then have to let Texas know that you're actually trying to form an organization. So that's called a Certificate of Formation. Every single business entity Novem no matter its classification, has to file it I had to file it for my firm, not and I'm and I'm an LLC, everyone has to file it. So when you you have to fill out the form 202 And on a side note, anything that you see with the line underneath it, that's a form those are hyperlinked and I will get a resource list to Sixto so you can click to see all of the forms. So you're going to file your Certificate of Formation, which for nonprofits is a 202 and it cost about $25. So again, you can mail it with a money order they want to take a check and I would recommend that you do expedited processing, because you know, just full disclosure when you mail something to any governmental office. The wheels of time seem to turn at a different rate than rea everybody else understands how time works. Well to say it that way. And then of course the easiest way is electronically through your SOS direct. That's that account that I'm recommending that you open if you're considering doing a nonprofit.
So you've submitted it, you get the acknowledgement. Now it's time for you to gather with your minimum of three if you're one of the founders, that organization to other people, but again, make sure they're odd numbers because you're voting and you don't want to get into a scenario where it's always a tie because then you don't get anything done. So you always want an odd number. But now you create your bylaws and your bylaws is your contract with the public is essentially saying this is who we are. This is what we're doing and this is how we're going to do it. It details all of the rules that govern what you do. In general bylaws are fairly standard. There are a number of templates. I always recommend having a conversation. You know, having someone who is unaware of what you're trying to do that is that served on boards to actually just take a look at your bylaws to make sure that they actually make sense. I'll give you a really good example. There's a new organization that is forming a nonprofit in another state and they asked me to just take a look at their bylaws. And the first thing I saw was a section about using a telegraph. I'm not being funny. Telegraph, it was fax, mail and telegraph. I realized what they had done was they cut and pasted someone's bylaws and this organization clearly was very old, because telegraph which I actually highlighted it because they're gonna play it was reading it was one of their forms of communication. So this is and I don't even think they even saw it. I think they were more worried about the sections. So they cut and pasted a lot put it together and then they started to go through but they didn't finish and so again, not a huge deal as long as you have somebody else looking at it because if let's just say I, let's say I didn't catch it, and then they submitted their bylaws with the federal government, the federal government is going to expect them to communicate by telegraph. Just say you don't want that sell. But nevertheless, at a minimum, you the name of your organization, your mission vision values, the number of board members minimum and maximum, now about the maximum to keep that in mind. You know, that's the space where you say you know, how big would I ever want my board to be? 13, 21 There's a museum here in Houston that has over 100 board members. I have no doubt they work by committee, but they make millions of dollars and so there are a way to do that. You want to make sure that you can accommodate the growth 13. 21 Now again, you can have a constitutional meeting and adjust your bylaws and increase it later. But when you start 11, 13 maybe seven, more than three would be helpful. Three, again is the minimum and as you notice, it's an odd number so there aren't any ties. But in addition board terms, which is really important, and unfortunately not often observed with some organizations so the board terms the commitments appointment and removal procedures, and then your meeting structure your annual meeting your regular meetings, your special meetings, your call meetings your fiscal year, when is your fiscal year. Everyone's fiscal year is different. And sometimes it makes it difficult when you're writing grants and fundraising but you know, you will make those adjustments. And then the other part will be the legalese that's required by law. There'll be some things in your bylaws that you will have to put in, particularly in the state of Texas.
Okay, so now you have all of that the next thing you need is an employer identification number. And this number is like a social security number for your organization. You can open a bank account with it, you're going to use it to get your tax exempt status both the tax at the Texas and federal level. But you're also going to use it to hire employees which on its face may not make sense. But that's how you're that's what allows you to do your payroll withholding. Now, you might not necessarily do it because maybe you outsource to a payroll company or using QuickBooks. But when you open your QuickBooks Online, you're going to enter your EIN number so it will take care of it. But to apply for the EIN number, again, you're going to fill out the IRS Form SS four and you can submit the form by mail fax or an SOS direct On a sidenote, you're still able to fax. I'm uncomfortable faxing personally. There are ways you can fax from your computer that do not require an app. But again, it's your private information. So whenever possible, I would recommend using the SOS direct because that way everything is secured everything is encrypted. And then lastly, just in case, apply for that number at least six weeks before you need it. Particularly as a nonprofit. You just want to build in that time. So you're so it doesn't slow the momentum. Once you really get started in that process. Okay, now the next one is a business license. Now a general business license is not required in Texas for nonprofit at all. However, if you're going to sell goods and services, a gift shop learning modules, online classes, you need to apply for one and what you're going to need is your EIN number. You're also going to need the social security number for each board member or director that's on your board. And then you're gonna have to provide what's called an NAICS code. And an NAICS code is a North American Industry Classification. All the codes already exist. Your job is to find the one that best describes the type of organization that you have. So for example, I have a LLC that designs custom dolls and when I was doing when I was looking for my na ICS code, I had to think about what I had. Initially it was toys, but it's not because I'm not I'm not selling toys. Because I'm sewing everything and I'm designing everything. It fell under a different category. So it may take you a minute but again you click the link the code will come up you'll enter in some search words and it will come up and then once you have your code you apply for your business license.
So now you have all that now it's time to file for your 501(c)3 federal tax exempt status. The first thing you need to do is now some people run an organization without nonprofit status because proof of concept is a passion project. It starts out as a collective. If that is the case, you have to ensure that your gross receipts of each of the last three years prior to filing. If they're less than $50,000 You can fill out the 1023 easy so brand new nonprofits who maybe you haven't done anything. Or if you have been working the last three years and under 50k. You file the easy form and it's about $275 If you are earning more than 50k in each and they're very specific. It's not the total it is each year. So if you're $50,000, the third year, but $49 and $48. Unfortunately, you'd have to they may make you do the regular form. And in fact, I'd err on doing the regular form because if you do the easy form and then they see that year you're like $50,002 they may kick it all the way back and then you have to start again. So if your gross receipts are more than 50k and gross means before any deductions, so not what you ended up with is what you start with. Then you have to complete the regular form 1023 And that fees about $600 caveat, you can actually claim it back later allegedly want to put allegedly in front check with your accountant. For LLCs we can nonprofits may be a little bit different. Now, keep in mind this is actually the point where you should have a nonprofit attorney look at your application. Okay. There are I know one in particular really good nonprofit attorney who is married to and artists that many of you know who does this paperwork for a really reasonable rate and I have no doubt she has some colleagues. So do not let that frighten you or overwhelm you. There will be some attorneys that will charge a significant amount of money per hour. You don't need that because you don't actually need it. It is advisable because there's nothing worse than having your document kicked back to you for a technical error and that's what the attorney will prevent. So it is worth the investment.
And then after all that is done, then you file for the tax exempt from Texas. Now remember way back when we I was talking about the formation, the Certificate of Formation that was just you signaling to the state that you were forming something and you were telling them what kinds of reforming it wasn't in like the moment you're telling them you're forming a nonprofit. They're not saying Oh great, now you're tax exempt not at all they're saying okay, great. You're forming an organization you're you're trying to form a nonprofit org and not an LLC, you're just letting them know what you want to do. Now is the time where you're going to file for that tax exempt status. Because what what that does is it allows you to make sure that you don't pay taxes when your nonprofit purchases taxable items. Okay, so you will you know, every quarter you'll have to go in to your franchise tax and your sales tax and and do it's quick it's online. A quick, easy report because again, your nonprofit so as long as you continue to demonstrate that you're not earning money, and again, your organization's going to earn money, but you're putting it back in, you're not earning it to save it to grow the money what you're doing is you're earning it so you can increase your programming so you can increase paying your salary so you can expand your institution. Don't look at the money that you make in the work that you do is profit it's not it's fun to reinvest.
Lastly, okay, so to apply for it again, the AP-204 is hyperlinked is literally called Tax application. For exemption federal and all others. That means is exemption across the board. But Texas will give you they required they require this as well for that certificate. So now keep in mind when you apply, you're going to have to submit your IRS issued exemption determination letter and that letter is just going to say, you know, congratulations, you are now recognized his organization with nonprofit status this that in the third. You're going to take that and you're going to submit it. Keep in mind in the state of Texas, if that form is older than four years old, you're going to have to get a new letter from the IRS. They will not take it because they don't know if it's been shut down if your exemption hit or if your classification has been revoked or what have you. So you know, just make sure that when you decide to do that part that you check the date on your letter to make sure that it is within that under four year window. I feel like that's pretty quick. Sixto I'm not sure.
No, and I think Thanks, Kheli, we thank you for walking us through all of this specific steps that you will need to think about in order to get to a 501 C three. We do have one question that has come up in the chat about is there a time limit from when you register for an EIN and file for federal tax exempt status? You know, from your register to filing for a tax exempt status?
No,
there are three.
So say it one more time. Is there.
Is there a time limit like Julia, you want to, actually, it was your question.
Hi Julia. Go for it.
Hi. So, um, so Fresh Arts is a fiscal sponsor. And so we have lots of fiscally sponsored projects who are interested in eventually becoming a nonprofit. Okay, but with one in particular or like something that has come up before is like they're in a rush to become a nonprofit. And so they immediately register for that ein without necessarily thinking about like, oh, I need to be prepared to like file a 990 and, and do my fair all my federal paperwork and stuff. So like, is, is there a time line that you would suggest or it I was we also had heard something like, when you register for an EIN there's like a time clock that starts from when you need to start filling out a 990 is that correct? Well,
so I'd have to check on that. Because traditionally, people don't get the EIN number till they're further down the road. That that's the challenge. So they're doing it a little bit out of order. I understand it, because people like oh, that's what you use. But in many ways, if you're founding the organization, you can also use your social security number which I would not recommend. Like even for my LLC, I got an EIN number, because I didn't want to use my social security number and I'm a single person business. So I understand why someone would say that to them for them to do that. But if you if to move at a rate for it to work, you should really follow the steps and the steps you can find online. This is not like this is what Kheli decided like this is the the easiest way to get it done.
So I think Thanks, Kheli, I think they're part of like we can check back in around that aspect but I will find out that part of the reason why we're going through these steps is that you actually think about all the steps prior to you actually doing this launch and recognizing that there are multiple things that you should be in consideration of before you actually determine that you're going to do a 501 C three and and plan for this. This is like I had planned for each and every step that involves the federal government to take more time that you think it's going to and to and to make sure that you have the things that that you need in place prior to recognizing that you know, bringing in the federal government for anything so I think that it is and then Kheli outlined certain steps and certain things for you to be thinking about. And think about it like know that you need all of those things, and that the timing of that is important in that component. Right. So
because the federal government when you submit your 501 C three application three months, six months, if the I mean, you know how many times they were saying that the government might shut down, you're not getting anything. It will not be a priority. So that's why having all of your other things like just you can't rush this process. That's that's the illusion. You can't do it quickly, which is why the federal government essentially says that if you've been in operation before applying for this because they're aware, you may start your work already. You may actually just start your work which is fine. Before you get that designation because it does take a little bit and it does take a bit of a financial investment, it is not possible to start an organization without spending money in it, it just is not it's not possible, which you know, is unfortunate, but it's it's part of training if it's $1 Right. Just to search for a name. It's $1. So, so
I think that Yvette is asking a question about "How doable is combined to 501(c)3 and 501(c)4?"
I don't believe you can you
can you allow for one or the other only that is correct.
And so that unit, you need to make decisions around what that looks like. And if you're talking about activism, and if the role of your work is activism. I'm not sure that you should be thinking about a nonprofit.
Correct
Because a nonprofits role is about like it is a public service. It is not activism. So if you are doing projects that are activist, that's great. Recognize that there needs to be different ways in which like an activism is different from from others. Yes, so be careful, be thoughtful around that aspect.
So for example, in my previous life, where I was a professor of art history, African American art history and film, I was also executive director of community for card Center, which is a multidisciplinary Art Center, grounded in the African diaspora, organized for educational purposes. So that allowed us to highlight the role of the African diaspora in arts and culture. It allowed us to law things but we stopped just short of overt acts activism short of position statements, short of you know, maybe bringing an author's Do you see the mean? So wasn't it it was not overt activism because we were the 501 C three because the federal government, do not sleep the federal government will take your stuff. They will they will revoke your designation. So you want to be really really careful because people report people and these days people reporting people for everything. So you just want to be very clear.
Yeah. So again, we were being really conscientious and around what this work is, and because we don't want you all to create more, to create more issues for yourselves in the future. Clearly you are going to make decisions that are like for yourself, but if you make some decisions that are against what we just said, y'all just... No, we warned you here. Don't do that. Okay. Just want to be clear on that aspect. You can't quote us.
Yeah. No, that's why I said I'll ask say allegedly in front of a lot of it lists
a lot of things. Yeah. So I think that but I, you know, think about think about what serves you and what the long term aspect is, and really, how that works on what your organization is doing. There are other organizations that are that have that but I'm not sure. So that we can think about that.
Julia? There's a question in terms of business structure prior to becoming a 501 C three. Do you want to ask a little bit more directly?
What was the question? Yeah, so so that so that someone wouldn't be using their social security number while they're waiting for this transition? Is there another business structure that that you would recommend for people who want to transition into being a 501 C three that's like, easy to transition into that like LLC or C Corp or does that matter at all? No, I
think you should stay fiscally sponsored to be honest.
Well, but they, they want, they want a structure that allows them to get an EIN so that they're not they as individuals aren't dealing with the same, like individual tax burden of getting a grant or something like that.
So okay, so they can I mean, they can slow walk to the 501 C three. I guess what I'm saying is the first steps actually, don't take a great deal of time to get to the EIN, but you just need clarity. So if you're saying they're a fiscally sponsored organization, they already have mission and vision. Right? They already have board right now. Okay, so that you see them saying, so don't skip steps. What I'm saying is whether it's even as an LLC, which, again, that's not nonprofit, so that I wouldn't try to that becomes something very different. That's different paperwork. You see it I mean, very, I can't think of for profit that turned to a nonprofit. There are for profits and maybe start foundations. But I get the feeling that that's not what they want. They want an organization. So yeah, so don't skip the step. You need the board. They have bylaws. Yes, no okay. So yeah.
So I guess this is actually the other question is like, you know, if part of the question around becoming a 501(c)3 is that it is a lot of it is energy and effort and you need to maintain a 501(c)3. If you are if you are only doing thinking about a project a year, or even a project every so often. That is not necessarily something that we encourage you to be thinking about a 501(c)3, because there's a lot of maintenance of, of reporting, a fiscal sponsorship and naming that, that is required, that you might not think about where if you didn't do anything that you're like, Well, if you didn't do anything, you know that you're you still own a 990 postcard, you still don't
send that postcard and they will, they will cancel you lack of a better term. Sorry. Absolutely.
And you still need to recognize like and you have to post your the board minutes and you have to have all those things very much that are specifically part of what the bylaws are. So these are part of the questions around as you were thinking around a 501(c)3. It's a lot of administration and a lot of of infrastructure that is necessary in order to be able to maintain a 501(c)3.
It's a lot of heavy lifting upfront. I wish I could say that it isn't it's a lot of heavy lifting. And if this is an individual or two individuals that that are doing this, it is a lot of work in in advance and it
could be valuable work just like this is why we actually want you all to know all the steps so that you're thinking about these things. And particularly if you're applying for the Cultural Treasures Accelerator program, that these are one of the reasons why we asking you to do it in three years. We expect that this is actually going to be a three year process for you to actually be able to launch all this work, and that in a three year period, you have done all of this work and can actually make this happen and recognizing again that you are doing work that was going to actually maintain beyond just that one grant because that one it is the BANF Cultural Treasures Accelerator is a one time grant. And that is one of the things that we just are trying to be mindful of.
I add one more thing Sure. Would you say because you know what you want to make? Sure. Julia, that you share with the organizations is that the moment they decide to do this, they're essentially making a public declaration that they're in service to the public, which is why your bylaws are critical, which is why figuring out who you would want on your board is important. You do not want to rush those steps just so you can get that EIN number. And I'm not saying that's what you're saying. But again, I think people say I just need to do this and then I can start work. But to change what you originally established with the federal government will then take even more work. And so you want to be really deliberate about you know, if one six or seven is this, this makes the most sense for the type of project the organization that you are, but to you know, would you, who do you want to be a part of this journey? Who's going to ride this with you because those initial board members which are often called founding board members, they have to work is a lot of work. There is absolutely no money you might not even get fed because again, this is a passion project. It's out of love. There is no money yet. So
I think Kelly that brings up a question from Stacy. "She has is a family member in the seat, a best practice for foundations only. Also what are some tips to transition from a fiscal sponsorship?"
So the first part, um, I have yet find a circumstance in the world where having your whole family around you is always positive. And so what even family Foundation's do is they have non family members on those foundations. They are just not the majority. But again, when we're talking Family Foundation, we're talking seed money, have you know it at a minimum five figures just to have the idea because again, the way that you get funded the way that you continue to fund it. The assumption with the Family Foundation, is that that foundation is actually funded through either the revenue from investments, multigenerational Well, somebody hit the lottery and I'm not being funny. Right, Microsoft millionaires, that kind of thing. If it is, and again, it depends on what your goal is. So let's say it's a founding family foundation, because you want to make sure that you support mothers who have lost children to gun violence. That necessarily might not necessarily in the manner in which you want to support them isn't necessarily cost prohibitive, then that's something very different, but it is still advisable to have a few non family members because there's no baggage that we all love and bright and they offer off offer different perspectives but they can't outvote the family. So
also I would say that um, from from reviewers and grant grantors standpoint if if the entire board is family, it brings up questions in relationship to how long is this actually going to be? How sustainable is this work? That's right. And is this actually for the public good or if it is it actually for a personal gain? So I think that that's one of the things that you will need to to negotiate in your in your growth process of what that looks like.
situation from the fiscal sponsor. This is not one of those things where you just like I'm doing my own, I'm breaking up with you. It's a slow burn. You know, you have the conversation with the fiscal sponsor and saying we're going to pursue this and if you've had a long term enough relationship, they may be offered to offer some counsel. Oh, okay, great. I'll take a look at your maybe the details, take a look at your bylaws, I would I would certainly have a transparent conversation and you know, in the hopes that you will have enough of a relationship where there can be some support there.
So I think that that's a good thing in order to continue to maintain a relationship with the fiscal sponsor, it is at that aspect and that's great. In terms of the "board members, can they receive compensation," they, it is going to be due to your bylaws and and know that like all that compensation is going to be is is actually clear on your 990. So let's be be if you are actually compensating your board members and you're not really and and that's more than the programs that you're making, or if that's actually the majority of the money that goes out and that has come in. That's going to create a whole lot of questions. And or not going to be questions, it is very clear what happens in that space. So who's going to donate to you or not will be another component but you that is publicly accessible via your 990s via GuideStar. Yes,
and I would also just caveat by saying that I have served on a national museum board we were not paid. Now folks that serve on boards that around business technology medicine, the higher up the sort of the larger the budget, the more likely that there will be some payment on the nonprofit level in general. And then I'm saying level in terms of where we are. You don't get paid. You pay. You pay I pay I I donate to be on boards, like if I'm invited to be on board there. You know, my question is what is the ask? Meaning? What do you expect as an annual donation for as a board member which is different and it can range anywhere from I don't know it could be $2. It's not $500 $5,000? Some board $20,000 But again, this is how that organization so that organization when the organization does that, what they're doing is they're guaranteeing a stream of income they know every single year, these 11 board members are going to give me $1,000 That means I have $11,000 If I don't have anything else. Now that's assuming that they give it but that's a whole
that's a whole other
webinar and that will comes with wine.
Anyway. So so hopefully we Angela that that answered your question in terms of compensation. Great.
In terms of board members being in familial relationship with the ED. There is no there's no caveat. There's no laws against it. You can do whatever it just it will then be about perceptions and who donates into that space. So you can have them just be aware of what that looks like and how that is and that some organizations and some, some foundations will look at that and not miss a they might be fine with it at the beginning. But if it if it lasts for more than a few years, they will be they will ask questions if it's if it is a concern to you.
Also say that, while that may be a practice with a board and an executive director, you do not want that in your organization. You never want a relative to directly report to another one. Have them report to someone else. So you never want to give the impression of quid pro quo, or nepotism which I know the young people saying that bows we don't want any of that. And so you want to make sure you interrupt that chain of command.
Right. I mean, that's an internal process. So I think you'll figure that part out and this yes, remember as a 501(c)3, all of your processes are open to public review. Everything you do, everything you do and any any foundation laws, they
can look they can see your bylaws, they can ask to see your strategic plan, all all of your things,
all the things we like foundations can ask, are there any donors can ask that aspect and as a 501 C three, you it is generally best for you to be able to supply most likely some of that like most of that information in that space.
And the more zeros the person who's giving the money the more they're going to ask for because you know, people don't want you to mess with their money and also is the worthy investment. So that that's where, you know, they look behind the curtain, so to speak. So
Stacy again, like you ask a question, so "So do you suggest that a founder not be on the board particularly to be eventually receive payment for their work?"
I gotta read.
Yeah, I've read that I'm not really good at reading out. Wait. So my answer Stacy would be that i i You can like that. That's a difficult that's a difficult question. And on ongoing aspect. They think the founder, the founder should be a board member in some ways.
That doesn't mean a founder CD, and right, right one and two. Just because you're a D doesn't mean you have to draw salary. There are a number of EDs that actually were small. I can think of a couple organizations here whose Ed actually doesn't draw salary.
And also you can be and that that can transition at any point, and that's like, you know, so that founder or that board member, you can transition off of being on board in that space. But even in terms of a 990. It's like if you are going to be a board member and Ed, it's named in that aspect. So it's not necessarily a question around. You're not being compensated as a board member. You've been compensated as the executive director. That's right. That's right. So however you need to like whatever you make sense for you and how that phones. I would also just remind yourselves as like what how much people are drawing down as employment and how much like you know versus how much people are being how much donations are coming in. So it's going to be questions around overhead. It's going to be questions around what is the long term sustainability of the organization and how those economics work. So those are those are questions that you should be having with your board that you should be having in relationship to the bylaws because that those are different foundations and different donors have different standards. And what is best for you might not fit with the values, as Kheli said of organizations previous in that space. But clearly, I mean again, we're not telling you like there's a lot of questions about best practice. There's a lot of questions around those that are, you know, that should be another conversation. Primarily, what we also want to be clear around is what does it take to be a 501 C three. And also, I want to be clear that the bypass networking fund does not mean that the 501 C three is the solution for every organization and
that's correct.
In that, I'm just going to go ahead and I'm going to copy and put in the chat. A, a narrative of an organization and essentially a friend of mine who has this, who after 10 years is dissolving their 501c3. [https://mailchi.mp/kyoungspacificbeat/dissolutionstatement] It is a painful process. And what they did was what they did and was very intentional throughout all the processes, but know that each and every step that you have that there are we the decisions that need to be made in this aspect. There's not so just be thoughtful around how this work is. Which is also why we are not saying this is this answer for everybody. But it is something that many people have actually thought about. And it is one of the only ways in order for you to get foundation support and grants and in in this city. So that is why we are being intentional around 501 C three as a as a method and as part of the system. Don't just because it's part of the system, does it mean it's the thing that you need to do? Right and again, $20,000 is not enough money in order for you to just start down a path of pain. A whole lot of paperwork and administration. Just because you think that $20,000 is worth it. And I will tell you it is not it's not it's not as the person who's been who's been on the board, been a director, founded organizations, be thoughtful around all this work. And but think about it that's actually like this is why we're giving you the information so you can share in this aspect.
We are at time but we can ask we can hang out and get some more questions if there are some. We will be like Kheli will share the outline of the work as well as the resources. This the transcript of this will be available eventually as well as whatever has been recorded on video. Sorry about that. But it will be up on our our webpage or YouTube page or website in order for for that information to be available. But think about this work. Hopefully it's provided some answers hopefully. And it's given you some more questions to be thinking about in a really positive way and think through what you want to be able to do. And and that's actually what the bypass networking fund is about is actually enabling you to fulfill the vision that's best for you and your organization. And not telling you to just assume just because these are this is the solution for somebody doesn't mean it needs to be yours. So thank you, Kelly for all of the wisdom and and the information.
My dog is very angry. so sorry. Just
what it is they're hungry. We're all hungry at this point. So thanks, everybody. Take care if there's any other questions, pop it in the chat or come up with mute and otherwise, we look forward to seeing you Oh, thanks, Julia. Good to see you. Thanks, Stacey. Thanks, Yvette. Thanks, Angela. Angela. Thanks Stacey. Thanks Delphine.
Take care one second. Put them outside but I'll be back to answer more questions.
Great. Any other questions y'all? Thank you. And if you all are looking to apply for the cultural treasures accelerated program, please, I suggest you look at FAQs. We've gotten some more questions that have come in and we are hosting our responses to it. Some of it includes some some tips around around narratives around some solutions.
I think that the latest question was can I hire a Can I can I hire a consultant and like absolutely the money can be about hiring a consultant. But we also ask you to think about why are you asking why are you hiring this consultant? Why is that important to your long term vision? What questions are you asking them? It actually does say that again, 501, C threes, and, and consultants are not the silver bullet. You all need to be doing a lot of work around what this looks like. And we encourage you to be thinking about those questions and those ideas as to what fits your future and not necessarily just what the consultant says. Right.
And as you're creating. Sort of like the language around your organization. It's always good to to either read it or to give it to someone who has no idea what you're doing to read it and then tell you what it says because sometimes you can is one of those four forest and trees type things. Sometimes you can be so far in it, and you think you're being completely clear. And then they're like, Okay, so you want to click turtles. And you're like I didn't say that I say simple turtles, because it's just the way that you've written because it's in your head. So you know, at each stage of the process, I find family members who are brutally honest, are sometimes the best. Mom's aunties because it's our psychology and like, they'll be a little bit suspicious. And so they're going to read it really closely. It's really helpful but you continue to just make sure that because again, it's it's your this is your contract with it with your public. And so you want to make sure that understanding who you are what you're doing, but it also will help you decide if this is the path you really want to take. You know, part of this is about stepping outside yourself a little bit and saying okay, does this make sense for what we're trying
to know it's about stepping outside of yourself a lot. It is not about you anymore. You are building an organization. Sorry, you're building an organization in which you are accountable to a board and the board is the one that is hiring the director and is reportable
and I will tell you nothing inhibits growth more than having an organization founded by someone who thinks it's about them. I kid you not. They will stay the exact same size they were when they were found it. Okay, they might grow a little bit bigger, but they will never be. They will never grow exponentially because it's attached with the identity of a single individual. So it's not really an organization, even if it has the status, they view it sort of as that person's organization, very different. In that we'll get tired.
But I think you know, there are people who play who've launched many things. And it's not just about them, but it's about a vision. And it's about a community. It's about a community good. It's about art like that's great. But if it becomes about an individual that's pretty much only worked for Baryshnikov and yeah, I think there's pretty much only worked for him. I'm not sure that there's any way other like, you know, Mike, you've had to have that much money but or be that famous be famous. I think exactly. If this is a this is about building a legacy. This is about building a structure that's beyond your organization and like and continues to support a public good. Right, right.
You know, as they say, than the last person that is your name, that's when you truly die. In many ways this is preventing your death. And so, you know, because you're creating this thing that carries the legacy and the principal. I mean, think about the organizations that you support that were founded 50, 60, 70, 80, 100 years ago. And what you think about are the principles and the values that that thing was built on and what they do, what they stand for, and, and when you know that what you're saying about that organization is completely in alignment with what people said 50, 60,70 years ago. That's clarity. And that's what you want. You want people to know who you are and what you're about. There's some organizations, all you have to do is say their name, and you get a mental picture of what they believe in, like when people say Ford, when people say bamps Now, they get an idea. Right, and we're talking to general public, we're not talking people in the arts. And culture space, because again, when you are applying to foundations, they might have no idea who you are. If the National Foundation, you're just on their radar, so for all intensive purposes, there are a whole bunch of strangers. The only thing they're gonna know about you is one when they go on your website and when they read your application. That's so that's, that's why taking your time in the first part of this with your mission, your vision, your values with your bylaws, that's critical. That is your calling card for who it would be wonderful if the work you produce is what makes it is what you can stand on. But what's going to keep you functioning is how you operate.
So again, this is also a place where like, even if this opportunity for this next deadline for the cultural treasures accelerator is not what serves you. We hope that these are questions that you all can continue to think about and continue to build in terms of when is it is it right for you, and when is it right for you? Right? And I that's also why this this timeline is exactly what it is, is that it's an accelerator program. So therefore, it's for people who are ready to take this next step. But if this is possible for the future, are you ready to take the next step in the future? And if it's not just this accelerated program, but what what would you be ready for in the future? So think about those ideas, and not just about this opportunity. And that's the actually the largest component is that if you are starting to do this just because of an opportunity, and only because an opportunity, don't do it, don't do anything worth it by yourself.
I have sat on enough panels where I'm saying, You know what, they just did this because they want the money. You can see it and you don't think that you're going to give it away, but you will.
We will see it. We
will see it. This we see it every single time.
So, but be thoughtful around this work. Be careful around like we we know 501 C threes are our lot of work. I don't ask you to do it, unless it's really what is great for your organization and the growth of your organization. So great. Any other questions? Otherwise, we're going to wrap up so that Toki Stacy got a question. Let's
see. Yeah, one more question. And I'm sorry, hey, hey, do ya have like a timeline because I've been fiscally sponsor for about six years and so I am ready to do a 501 C three. But is there like a timeline of like, I guess in your life experiences in administration that like at this time point, this is when you know that you've grown like I guess, I guess I'm looking for checkmarks or it's internal.
It didn't turn out. To be right if you if you believe that you you're ready to sort of put that labor in with with the bylaws and the board because again, you're going to your initial board members that you ask, you need people that are going to arrive for you because it's gonna be a minute. You know, it's, it's gonna be a little bit of a minute because you are at once you start activating all of these steps, then it doesn't matter what timeline you have is what the state of Texas timeline says. And what the federal government's response time is. That changes everything but the work up front. If you think you're ready, then start the work. Now, when you hang up, make a long list of all the people you think would be good for the board and then start thinning it out. You know all you know, look, look at your practices. Look at your mission, your vision, your values. If you don't have bylaws, look at some templates, start drafting that like do the work before you even pull the trigger before you file that Certificate of Formation with the state of Texas. It says you intend to start a 501 C three do all of the work that way that part is done before you do anything else while you're still fiscally sponsored. Nothing prevents you from doing all that work.
Right. And I think it's like when you say that you want a checklist and actually, I will tell you that one like we will rarely give you a checklist because a checklist actually is something that I become standard and really what it is it's actually what is driving you what is driving that organization. And we don't want to give the checklist because what is what is right for one organization is not right for everybody. But I do think that where what you need to be thoughtful around is is as fiscal like what why does Fiscal Sponsorship not serve you anymore? And are you ready to take on all the rest of this work? And if fiscal sponsorships are fine for you and you like Mike then then you know then that might be one of the things like be thoughtful around that and be be accepting of it. But it also Fiscal Sponsorship is about like, if you have a good fiscal sponsor, they're doing a lot of this background work. They're doing all the paperwork and administration that you don't have that you don't have to do that you will now have to do Sorry, or you will have to pay somebody to do in order to make some of those things happen. And so it's actually about now a question for you Stacey around is this the right growth spurt, this space for you? And does it create is the model that this this opens up for a 501 C three. Is that actually the direction and the work that you want to do? Hopefully that's helpful. Yes, thank
you. I've already assembled a board and did the Texas part I just haven't done the IRS part because that's seems like
you have your bylaws and everything. No,
I don't have bylaws but I've asked people to be board members and I did the Texas part that first. Yeah, I did their part. The SOS part. Yeah, I've done that part. And I've asked people to be by board members and I've looked at bylaws but I haven't written them because very much like what you described is it was like a lot of sections and so I have to like
well we can talk offline because there.
Yeah, I mean at the SEC sounds like you've got a lot of things taken care of. And it kind of makes sense. So that's great. I think that you were you have you've been contemplating this work, and you're moving forward. Awesome. Continue to figure this part out. And so that's great. And like in some of those steps, and like really that's also why you ask the network. Some people have bylaws simply thing like and also, like I would encourage you to ask for organizations that you like to see what their bylaws are. And if they share it with you, and I'm like, hey take take from them. Take like take from it what makes sense and then see what like see that most likely they might all have the same bylaws.
I mean, the man allegedly, allegedly allegedly not only nationally, you know if there's the dance organization we really liked if you liked national blacks and danced with our bylaws a lot of lobbying against public information. might even be Google National Black Sundance byline
Yeah, and like actually, like don't go I like IBD is a whole different type of mission. They have a different mission than you that they can check them check their bylaws and they think that that's the part where they check
the bylaws to see how they talk about like how they operate within a dance space. So
this is the other part was like what we can encourage you is do your research before you make make commitments. Make. Make sure that these are educated and intentional choices that you want to do not because somebody told you that it's the next step. Okay,
