Can a Nonprofit Partner with a For-Profit?
What Business and Nonprofit Leaders Need to Know
A nonprofit may work with a for-profit business on an event, program, sponsorship, or service. A well-planned partnership can support a charitable program and bring useful expertise or resources. Before committing, both organizations should understand the proposed roles, payment terms, tax treatment, and effect on the nonprofit’s mission.
Start with the purpose and the parties’ roles
Write down why the partnership advances the nonprofit’s exempt purpose and what each organization will do. Clarify who controls programming, ticketing, vendors, customer information, and public communications. The nonprofit’s role should be substantive and consistent with its governing documents and applicable tax rules.
Review the financial and tax terms
Do not assume that a nonprofit’s tax status makes a business partner or a joint event exempt from sales tax. Missouri sales tax treatment depends on the transaction, the items or services sold, and the applicable statutory exemption. Confirm who is the seller, who collects and remits tax, and whether a specific exemption applies before setting prices or advertising tax treatment.
Federal unrelated business income tax may apply to income from certain regularly carried-on activities that are not substantially related to the organization’s exempt purpose, subject to exceptions. A payment’s label alone does not determine its tax treatment. Ask a tax professional to review the actual arrangement.
Protect the nonprofit’s mission and independence
Document how the arrangement serves the nonprofit’s purposes and how the financial terms were set. The nonprofit should avoid improper private benefit or private inurement and should follow its conflict-of-interest and approval procedures. If directors, officers, or substantial contributors have an interest in the partner, disclose and address that conflict before approval.
Put the agreement in writing
A written agreement should address:
Each party’s responsibilities, decision-making authority, and approval process.
Fees, sponsorship payments, ticket revenue, expenses, and who bears a loss.
Use of names, logos, intellectual property, and public statements about the relationship.
Insurance, indemnification, safety, permits, cancellation, and dispute resolution.
Handling of customer or donor information, records, and compliance responsibilities.
Marketing should accurately describe the relationship. Do not promise that a ticket, payment, or sponsorship is tax-deductible unless the facts and tax rules support that statement. Sponsorship recognition and advertising can receive different tax treatment.
Get advice before the launch
Before promoting or selling tickets, have the proposed agreement reviewed by counsel and, when appropriate, a tax professional. Early review can identify issues while the parties still have room to adjust their roles and financial terms.
This article provides general information, not tax or legal advice for a specific organization. The Law Offices of Elizabeth E. Tharpe advises Missouri businesses and organizations on contracts and governance matters. Contact the office to discuss whether legal review may be useful.
