CAMPOLO'S
NOT-FOR-PROFIT UPDATE
Hybrid Companies; Part Money-maker, Part Nonprofit
(Posted Feb 16, 2012)
An L3C, or low-profit, limited liability company is a relatively new type of company intended to put social goals ahead of making profits. These part social benefit and part low-profit entities are popping up around the country as a way to bridge the socially beneficial missions of nonprofits with a more traditional for-profit business model.
More specifically, the L3C is a variation on the Limited Liability Company, designed to take advantage of both non-profit and for-profit sources of capital. As the term "Low-Profit" suggests, an L3C typically engages in socially-beneficial activities which may not be lucrative enough to attract sufficient commercial investment. By using a tiered capital structure, the L3C can potentially attract a diverse group of creditors to finance its operations, including private foundations. An L3C may offer a marketing advantage over the standard LLC in attracting socially-conscious investors and consumers and socially-conscious for-profit entities.
Unlike a standard LLC, which can be organized for any lawful business purpose, an L3C must operate to significantly further a charitable goal as required by IRS regulations and only a secondary profit concern. But unlike a charity organization, the structure can be supported by money from foundations and is free to distribute profits, after taxes, to owners or investors.
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The Social Enterprise Alliance
And its advocacy agenda of enhancing the environment for social enterprise
(Posted Jan 18, 2012)
As a new Board member of the Social Enterprise Alliance (SEA) Long Island Chapter, I'd like to share the mission and goals of this sustainability- and social-responsibility-geared organization. Starting with the basics, a social enterprise is an organization or venture that achieves its primary social or environmental mission using business methods. The social needs addressed by social enterprises and the business models they use are as diverse as human ingenuity. Social enterprises build a more just, sustainable world by applying market-based strategies to today's social problems.
There are two distinct characteristics that differentiate social enterprises from other types of businesses, nonprofits and government agencies: Social enterprises directly address social needs through their products and services or through the numbers of disadvantaged people they employ. This distinguishes them from "socially responsible businesses," which create positive social change indirectly through the practice of corporate social responsibility (e.g., creating and implementing a philanthropic foundation; paying equitable wages to their employees; using environmentally friendly raw materials; providing volunteers to help with community projects). They are powerful vehicles for job creation, economic growth and increased opportunity for people facing barriers, including those in low-to-moderate income families and communities. (www.se-alliance.org)
Social enterprises use earned revenue strategies to pursue a double or triple bottom line, either alone (as a social sector business, in either the private or the nonprofit sector) or as a significant part of a nonprofit's mixed revenue stream that also includes charitable contributions and public sector subsidies. This distinguishes them from traditional nonprofits, which rely primarily on philanthropic and government support.
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Negative Impact of Proposed Federal Budget on Nonprofits
(Posted Dec 20, 2011)
In today's challenging economy, the demand for nonprofit services is greater than ever. At the same time, nonprofits have found contributions declining as more Americans struggle to make ends meet. Many nonprofits rely on, not only government support, but on large gifts from wealthy individuals and families, as well.
If enacted, President Barack Obama's proposed budget for fiscal year 2012 will likely reduce charitable giving even further. His budget proposal would harm charitable organizations by raising the tax rate on upper-income individuals and families and reducing their income tax deduction for charitable donations. These two changes in the tax code will undoubtedly discourage charitable donations, by weakening the incentive for the wealthy to give.
The goal of Obama's budget proposal is to raise money to help close the nation's mounting federal deficit by limiting the tax write-offs that high-income people can get for their itemized deductions. But this clearly comes with a price, one that charities and nonprofit organizations will pay. Studies on President Obama's proposal to limit the value of the charitable deduction, have estimated that the change could depress giving anywhere from $1.7 billion to $5.6 billion, which is enough to put many nonprofits out of business, at a time when many Americans need them most.
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Data Privacy and Security
(Posted Oct 3, 2011)
Our firm is gearing up to present on a panel entitled "Data Privacy and Security Compliance: Is your Company at Risk?" As we publicize the event to our clients, friends and colleagues, it becomes clear that privacy and data breaches are part of every company's nightmare of what can go wrong. There is no company in any industry that is not exposed to risks and liabilities related to unauthorized access to personal information of individuals. All companies accepting credit cards for payment assume the responsibility of complying with the privacy laws in the heavily regulated payment card industry. Non-profit organizations are no exception. Non-profit organizations not only face the same privacy and data protection challenges and requirements that apply to any business, but they often face these challenges with smaller budgets and fewer resources.
Many organizations feel that they are in compliance with PCI and with state and federal privacy laws, but breaches and misuse of personally identifiable information still occur, often resulting in significant fines and damage to reputation. The cost of complying with these regulations may be high, but the cost of security breaches may be higher. In the event of a data breach, non-profits may suffer even greater harm than some for-profit entities, in losing the trust and confidence of current or prospective donors and other supporters.
Since 2005, it is estimated that over 370 million records containing personal information have been compromised as a result of data security breaches at U.S. companies. To protect individuals, in the past few years, federal and state government have imposed a variety of obligations relating to the collection, use and storage of "personal information (PI)." PI generally is defined to include a person's name, together with a driver's license or other state-issued identification number, bank or credit card number, or financial account number. In addition to governmental regulations, the credit card industry also imposes numerous data security requirements on any entity that accepts or processes credit card payments.
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New State Task Force to Review Not-For-Profit Executive Compensation
(Posted Sept 7, 2011)
On August 3, 2011, Governor Andrew M. Cuomo announced that he has created a new task force to investigate the executive and administrator compensation levels at not-for-profits that receive taxpayer support from the state. The task force will be led by the New York State Inspector General Ellen Biben, Secretary of State Cesar A. Perales, the Medicaid Inspector General Jim Cox, and the Superintendent of the Department of Financial Services Benjamin Lawsky.
This action follows published reports of excessive salaries and compensations at some Medicaid funded health centers. Cuomo says the probe was prompted by a New York Times story that alleges two owners of not-for-profit homes for the developmentally disabled, financed largely by Medicaid, each received an annual salary of around a million dollars, and received compensation that included payment of college tuition at private schools for their children.
A similar story recently broke in the New York Daily News by Jake Pearson about the exorbitant compensation of Dr. Linda Brady, CEO of the nonprofit Brooklyn hospital, Kingsbrook Jewish Medical Center. According to Pearson, Dr. Brady earned approximately $4 million dollars in 2009, while the struggling hospital was closing a clinic and firing employees. Of the amount paid in 2009, her base salary was over $1 million.
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Changes to Laws Governing Not-For-Profits
(Posted July 15, 2011)
Campolo, Middleton & McCormick recently presented at a Not-For-Profit (NFP) Update seminar covering the legal part of the latest news affecting the not-for-profit sector. While other speakers discussed not-for-profit updates with respect to accounting procedures and investment policies, our focus was on discussing compliance with the New York Prudent Management of Institutional Funds Act (NYPMIFA).
Here's a brief background on the new law. As of September 2010, New York State enacted the New York Prudent Management of Institutional Funds Act (NYPMIFA) which changes the rules governing how not-for-profit organizations manage, invest and spend their endowment funds. The Act applies to all public charitable organizations, private foundations and practically every corporation formed under the New York Not-For-Profit Corporation Law. The new law provides institutions with more flexibility in spending from endowment funds giving them greater access to money needed to support their programs and services. While it gives these organizations accessibility to donor endowment funds, it also imposes a greater standard of prudence in how an organization decides to invest and manage those funds. The enactment of this new legislation reflects the struggles that many not-for-profit institutions are faced with due to the recent economic downturn.
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