BUSINESS 101
Not-for-profit companies try to benefit public
What is the difference between a profit corporation and a not for profit corporation? This seems obvious, but many do not truly understand the difference.
Most companies are organized “for profit.” This means that the corporation’s purpose is to have its income exceed its liabilities so that ultimately the shareholders will see a benefit either through dividend payments or through increased value of their stock shares. With a not for profit corporation, the goal may still be to have income exceed expenses, however, the ultimate purpose is for the excess to be used for some public benefit, not to benefit shareholders. In fact, a not for profit corporation does not have shareholders. Instead they have members. These members cannot receive dividends and have no ownership interest in the corporation or its assets.
Like with profit corporations, not for profit corporations have a board of directors. This Board has as its purpose the overall control of the corporation. While a profit corporation may have a single director, a not for profit corporation must have a minimum of three directors. Directors for the company may be any natural person over the age of 18. Also like profit corporations, a not for profit corporation may have officers. These usually, but not necessarily include a President, Vice Presidents, Secretary and Treasurer.
Another misconception about not for profit corporations is that the offices and directors are not paid. This is not necessarily true. While many Boards ask Officers and Directors to serve voluntarily, there is no law requiring this. Indeed, Directors and Officers may receive a salary for their service and the directors are even authorized to set their own salary level. Unless the corporation falls under certain restrictions, there is no requirement even that the salary be reasonable. In other words, some not for profit corporations may pay their officers and directors salaries that are clearly excessive.
A not for profit corporation is formed much the same as a profit corporation. Formation begins with the filing of Articles of Incorporation with the Florida Department of State. The Articles must set forth the name and street address of the not for profit corporation, must state the specific purpose of the corporation, tell how the directors are elected or appointed, and provide the name and address of the registered agent. Like with profit corporations, the registered agent must sign a statement that they are familiar with the duties of a registered agent and that they agree to serve in that capacity.
Once the not-for-profit corporation has been formed, it is up to the members, directors and officers to run it. Running a not-for-profit corporation is similar to running a profit corporation in many ways. The frequency and place of meetings of the members should be set out in the by-laws for the corporation. While a failure to hold an annual meeting can be fatal to a profit corporation, it has essentially no effect on a not-for-profit corporation.
Also, unlike the shareholders of a profit corporation, members of a not-for-profit corporation have no inherent power to vote on issues affecting the corporation. The members only have those rights to vote as set out in the articles of incorporation or by-laws. If the Articles or By-laws fail to give the members voting power, the right to vote rest solely with the directors. The corporation may, but is not required to give membership certificates to their members. They must, however, keep a membership book listing all members in alphabetical order.
Notices must be sent to all members prior to a meeting, unless the members waive notice either before or after the meeting. However, if a member appears at a meeting without receiving notice, it will be presumed that they received notice, unless they object prior to any action being taken.
When members are allowed to vote, they may do so in person, or by proxy. Proxies will only be deemed valid for a period of 11 months after they have been signed. If a corporation is a member of a not-for-profit corporation, the chairperson or an officer may vote the corporation’s interest on behalf of the corporation.
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Thank you for this well written primer on not for profit corporations in the state of Florida. I spent most of my work life in NFPs in NY state, where the laws are somewhat different, especially in terms of compensation for board members. Your explanation of the FL law regarding NFPs helps me to understand some of the actions and motivations of not for profits here. Thank you again.