The Nonprofit FAQ

Can one nonprofit create another?
Victoria Williams wrote to NONPROFIT (see http://www.rain.org/mailman/listinfo/nonprofit) on November 13, 2004:

My non-profit museum is a broad base history center. Now the board wants to spin off another non-profit center with a very specific subject in history. I was assigned the task to assemble information on a non-profit forming another non-profit. Can this be done? How can this be accomplished?

David E. Ross suggested:

Try the following steps:

  1. Recruit a committee of volunteers who are interested in
    creating the new non-profit; try to include at least one attorney
    and one CPA. Add one or two staff persons from the existing
    non-profit; this is proper since the existing board has directed
    this action.
  2. Determine what resources (funds, programs, etc) of the existing
    non-profit will go to the new non-profit.
  3. Incorporate the new non-profit, establish its board and
    officers, and submit Form 1023 to the IRS.
  4. When the IRS notifies the new non-profit of its 501(c)(3)
    status, the existing non-profit donates the resources (#2 above) to
    the new non-profit, which is now an independent entity.


Robert Tolmach added:

You shoud decide if the spin-off is to completely separate the new entity,
or if you want the existing nonprofit to control the new nonprofit. Both
are feasible.

Also, you don't need to wait for 501c3 status to provide the new entity with
the resources it needs to proceed with its mission. An existing nonprofit,
including the parent organization, can serve as its fiscal sponsor.

If the new organization is going to be controlled by the organization that sets it up, the new organization's charter documents will specify how the parent organization appoints board members and maybe other details. Charter Documents are discussed in http://www.idealist.org/en/faqcat/5-5 ; fiscal sponsorship in http://www.idealist.org/en/faq/70-9/99-33 . -- Ed.



Posted 12/14/04 -- PB