As you likely know, although there are a vast number of ways that sanctuary organizations operate and present themselves, to be an animal sanctuary means that you do not exploit animals in order to make a profit. However, not profiting from animals in sanctuary is not the same thing as receiving legal designation to be a nonprofit A non-governmental organization whose primary purpose is something other than selling goods or services. organization!
For organizations in the United States, there are many considerations that go into the decision to incorporate that must be carefully considered, and failure to comply with the accompanying responsibilities carries significant risks. It’s important to be as informed as possible in order to protect your residents and sanctuary!
The following resource was written for The Open Sanctuary Project by guest contributor Peggy Cusack. Peggy is a nonprofit consultant and attorney who lives in Washington, DC. She hopes to start her own sanctuary someday, but for now she’s available to help you with your organization!
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If you are getting started with an animal sanctuary or rescue organization and have questions about the regulatory information found below in this resource, contact us here and we’ll put you in touch with Peggy, who’d be happy to answer your questions!
In simple terms, being a nonprofit means all of the “net income” that your organization generates is reinvested back into your organization for activities that support your mission The stated goals and activities of an organization. An animal sanctuary’s mission is commonly focused on objectives such as animal rescue and public advocacy. rather than being distributed to the owners or someone else. Net income is the income left over after you’ve covered all expenses and taxes – also sometimes called “net profit.” Nonprofits Non-governmental organizations whose primary purpose is something other than selling goods or services. can make profits – but all of this profit must be put back into the organization!
When most people hear “nonprofit, ” they also tend to assume “tax-exempt” – that is, an organization exempt from paying certain taxes and that may afford tax deductions to donors. But not all nonprofits are tax exempt. Federal tax exemption requires formal recognition from the Internal Revenue Service after an application process governed by Section 501(c)(3) of the Internal Revenue Code – which is why tax-exempt nonprofits are often referred to as “501(c)(3)s.” State tax exemption is a separate process managed at the state level in each state.
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A nonprofit can organize itself in several different ways. For the purposes of this resource, we will only be covering unincorporated nonprofit associations and nonprofit corporations. There are other ways to organize nonprofits, but most of them are likely not applicable in an animal sanctuary context.
Although not addressed below, it’s also not uncommon for new groups to opt for something called fiscal sponsorship as an alternative to starting a nonprofit. Fiscal sponsorship means that you become a program of another established 501(c)(3) nonprofit (your “fiscal sponsor”) that provides administrative support in exchange for a percentage of your donations. You can have your own name, and for the most part, you’re running your operations. However, you will be required to sign an agreement with your fiscal sponsor that lays down some rules about working together. In exchange, you are covered under the 501(c)(3) status provided by your sponsor, and your sponsor may provide accounting and legal services, HR services, fundraising support, etc. To learn more about fiscal sponsors, check out the sources at the base of this resource.
Two or more people coming together under a common name in support of a common goal are considered an unincorporated association. Some unincorporated associations are for-profit associations (such as a food truck or a lemonade stand). When the purpose of the association is to support a social cause or a public good, and where all of the net income generated by the association is reinvested back into the association and its mission, the association is considered an unincorporated nonprofit association (“UNA”).
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In an animal sanctuary context, two people raising money to rescue an animal and move them to a sanctuary are likely an unincorporated nonprofit association.
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Unincorporated associations exist everywhere. No legal paperwork is required to form them, and generally, they are not recognized as legal entities. However, many states will recognize UNAs and provide them with some rights (for example, the right to execute a contract) and protections (for example, limited liability protections) if they abide by specific requirements. These requirements vary from state to state and may include registration requirements, tax requirements, rules regarding administration of the association, charitable solicitation (fundraising) registration requirements, and local business regulations.
If you decide to operate as an unincorporated association indefinitely, it’s highly recommended that you consult with qualified and licensed professionals in order to explore UNA registration options within your state and ensure that you’re leveraging any added benefits or protections available for this type of nonprofit. You should also obtain a federal tax identification number (TIN or EIN).
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Tax-exempt status at the federal level means that you will not need to pay federal income tax to the IRS. There are more than two dozen types of nonprofits that the IRS recognizes as tax-exempt eligible under Internal Revenue Code section 501(c). If you are an exempt organization that is recognized under Section 501(c)(3), you receive the added benefit that donors that contribute to your 501(c)(3) can may deduct the contribution on their federal taxes (which is why many donors will inquire about your “(c)(3) status” when considering a donation). dependent, of course, on your own tax situation.
To qualify under section 3 of section 501(c), an organization needs to be organized and operated exclusively for a purpose that falls within the “exempt purposes” the IRS lays out. The exempt purposes set forth in section 501(c)(3) of the tax code are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. Nearly all animal sanctuaries in the US are qualified to become 501(c)(3) organizations because they fulfill the IRS’s exempt purpose of preventing animal cruelty.
Unincorporated associations with annual revenues of $5000 or less that have a purpose that falls within one of the IRS’s exempt purposes can operate as tax-exempt nonprofits. They do not need to apply to the IRS for this status, they do not have to pay federal taxes, and donations to these associations are considered tax-deductible.
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UNAs with an exempt purpose with annual revenues greater than $5000 will need to formally apply for 501(c)(3) status with the IRS to qualify for tax-exempt status. UNAs that apply for 501(c)(3) status will be required to file articles of association (similar to Articles Of Incorporation) and a set of bylaws with their application. Any UNA operating as a 501(c)(3) tax-exempt organization will have annual federal reporting requirements and possibly state filing requirements.
UNAs work well for informal situations with short term goals. If you’re going to be around for a while, or if you are planning to seek a large number of donations, it may make more sense to incorporate. As a practical matter, many unincorporated associations decide to seek IRS recognition because it can be challenging to raise money without an official designation from the IRS. At this point, it often makes sense just to go ahead and incorporate since the IRS will also require much of the paperwork required for incorporation in a 501(c)(3) application. Corporations are the most common form and widely used structure for nonprofit organizations.
Incorporating is the process of creating a corporation. There are for-profit and nonprofit corporations. A nonprofit corporation is a legally recognized corporate entity with a public purpose that cycles all of its net income back into its mission. Operating as a nonprofit corporation generally involves filing paperwork in your state and managing ongoing reporting requirements to comply with the regulations that govern corporations in your state.
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This is the primary reason to incorporate – limiting liability for everyone involved in operating your organization. Because a corporation is recognized as a separate legal entity, the officers and directors of a corporation are generally not exposed to personal liability for the corporation’s debts and liabilities, including personal injury, property damage, tax liability, and contractual liability, among other things. On the other hand, individual members of UNAs can be held liable for the obligations of the association if state laws do not provide for any protection. In states where protections for UNAs do exist, these protections are not automatic and generally are more limited than those afforded corporations. In addition to exposing your founders to personal liability, you may also find it challenging to recruit external board members as an unincorporated association because of the limited liability protections afforded.
Donors and funders are almost always going to ask about your 501(c)(3) status. Most foundations, corporations, and private donors will require 501(c)(3) status, and many government and private programs can only provide funding to organizations that are incorporated. Corporate status lends credibility. While it is possible to receive 501(c)(3) recognition without incorporating, practically speaking,
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