When many groups first consider organising as a nonprofit, they tend to primarily focus on the advantages, such as the preferential tax treatment of certain types of revenue. While there are undoubtedly several advantages to setting up a nonprofit, there are also several drawbacks.

When deciding whether to apply for nonprofit status, it’s very important to carefully weigh the positive and negative aspects before formally organising and registering as an NFP. The following overview highlights some of the best, and worst, nonprofit features.

Tax Incentives

Many Australian nonprofits are eligible for a host of tax benefits, if they meet specific requirements. Not only are many types of income tax-free, but the nonprofit may also qualify for exemptions or rebates on fringe benefits tax, and concessions on the goods and services tax. This allows nonprofits to use the funds that would otherwise go to the treasury and reinvest them into the nonprofit to help fund operations, services and sustainable growth projects.

Grant Eligibility

Many public institutions, as well as governing bodies at the local, state and federal level, offer grants to nonprofit organisations to help them advance the public good. These monies typically do not have to be repaid, although there is usually stipulations that govern what activities and projects the nonprofit can spend the grant on. Grants are a valuable source of funding that is not available to for-profit organisations.

Costly and Time Consuming to Form

The legal requirements to form a nonprofit organisation are quite complex. The process of starting a nonprofit is lengthy and expensive. To ensure that all of the forms are completed correctly, it will usually require the group to seek outside, formal legal counsel and other professional consultants to assist the organisation throughout the process.

Public Ownership

The public citizens that live in the location where the nonprofit is registered or incorporated are the actual owners of the nonprofit. This means that officers and other parties connected to the nonprofit can’t directly receive its assets and income, except for earning a fair-market salary for their services. No specific party is allowed to benefit from the NFP’s operations, or when it dissolves.

Since the public owns the NFP, shares or ownership can’t be issued, transferred or sold, it can make it difficult to attract and retain a talented and highly-skilled workforce that would be drawn to stock options as part of their compensation package.

Fine Line Between Advocacy and Lobbying

While advocacy plays a vital role in helping nonprofits get the word out about their cause, NFPs must balance advocacy to avoid actual lobbying for specific candidates and political platforms that can put their nonprofit status at risk of loss. The owners and officers of for-profit entities, on the other hand, face fewer restrictions on their public speech, political endorsements and disclosure requirements.

Stereotypes and Myths

There are several widespread misconceptions about the not-for-profit sector that create barriers for nonprofits to expand. A primary example of this is the various preconceived notions that make it difficult for nonprofits to meet their recruiting requirements when searching for officers, volunteers and staff.

For example, many professionals are hesitation to leave the for-profit sector to work at a nonprofit because they fear that they will have fewer chances to acquire new skills and sharpen existing ones. Many also fear they will have fewer networking opportunities.

Working at a nonprofit, however, can expand your experiences and make you a more attractive candidate at for-profit companies. Nonprofits also interact with key influencers in several industries on a regular basis, potentially providing new, and different ways to expand one’s network of contacts.

It’s a lot of work, but there are many benefits when groups create their own nonprofit. If your organisation benefits the public, it’s likely well worth the time and energy to form an investigative committee to explore what steps you need to take to achieve nonprofit status.