To NPO or Not to NPO

Deciding to start a NPO Theatre Business

by Staff Writers    Posted 05/23/2008

Congratulations! You're going to create a production company, an improv team or another theatre-related group. So far, you have found the people you will need, maybe even the space you will perform in, but there is one question you're still not sure of: "To NPO or not to NPO?" Whether you always assumed that all theatre is NPO or you don't even know what NPO stands for, the decision can be extremely important to the success or failure of your theatre venture. So, how do you know whether or not you should NPO? And what exactly is a NPO? And what do you do once you decide?

Determining whether or not your theatre venture should form a NPO is ultimately a strategic decision you will have to make, but here are some things to know that will help make that decision.

First, some criteria that may make you lean towards creating a NPO:

• Your form of theatre is experimental and you have no way to even begin to know what level of audience interest you will get.


• Your theatre carries a repeated high potential for loss when it is performed, because it is: controversial, educational, free to the public, has a very narrow audience demographic, or wants to serve a public good other than entertainment or artistic expression.


• Your organization is going to be more of a hobby than a job - something that is done part-time.


• There are many grants and foundations that fund your theatre interests.

Second, what does being a NPO mean? By definition, a NPO is a NOT-for-PROFIT ORGANIZATION. I want to make this distinction now. That does not mean non-profit. NPOs can make more money than the amount that has been invested. However, that money does not go back to an investor as profit, it is used to continue the NPO's business. For many, the term non-profit seems to insinuate a charity. Although charities are usually NPOs, it does not mean that goods or services must be given away for free and that no profit can be earned. It means that the organization is not focused on making a profit, but rather on serving a greater purpose, called the mission statement, which is what the NPO dedicates any profit it makes towards. For instance, a NPO theatre can put on a show, charge for the tickets, and make more money than the show cost to produce, but this extra money cannot be kept by the people who run the NPO - it must be used to further the NPO's mission.

Now, you are probably wondering what the mission statement is. The mission statement is a statement of purpose for the NPO. In other words, it tells anyone who is interested what the NPO does, what is allowed to do and why. Anything the NPO spends money on or does must be in service of the mission statement. This is different from other forms of business, where a mission statement is mostly optional. Furthermore, a NPO's mission has to be connected in some way to serving the public. The public may be narrowed to a more specific group, but the purpose has to serve that group, as the NPO by definition does not exist to make profit - this is the reason it does exist. Here is an example of a mission for a NPO: "To revive classic theatre for younger generations" or "To bring emerging artists into public venues." As you can see, there is a bit of latitude here. However, these would be bad mission statements: "To put up shows I want to see" or "To produce theatre that makes me rich." The bad mission statements are only bad for a NPO; if that is what want you would like to do, you can, but only in a private company, not a NPO.

Again, it sounds as though you cannot make money in a NPO. As discussed earlier, you can't profit. However, you and any other employees and officers of a NPO can draw a salary for your work under the NPO. However, that is the limit of what you can earn. Since the topic of employees and earning have come up, let's talk about the structure of a NPO and its financial benefits.

A NPO under most circumstances must have a governing structure. A NPO generally will have a board of directors who are usually selected either through election or appointment and invitation. The directors are almost always volunteers unless they hold another managing position in the NPO, such as president, treasurer or general manager. The board will help to direct the NPO towards achieving its mission and ensure that is does not stray from that mission.

A NPO has certain financial advantages over private companies. First, a NPO can apply for tax-exempt status. Note: This is not automatic and you must apply with the IRS for 501(c)3 status. This is the designation that includes charitable purposes like the creation of public works including the creation of theatre performances. Usually, a Form 1023 will need to be filed for the application. What this generally means is that your organization will not be required to pay taxes. In many cases, you may even be exempt form paying sales tax. Although you may be eligible for these benefits, you should consult an accountant when you form the NPO and when dealing with taxes or exemption from them.

The second financial advantage, assuming your NPO's 501(c)3 status, is the ability to accept donations and grants. There are many foundations and private organizations willing to fund theatre through grants. Additionally, there are local, state, and federal organizations like the NEA that fund grants for performing arts. NPOs with 501(c)3 status can also accept private donations from anyone they wish as long as all incoming money is appropriately accounted for. It is extremely helpful when forming a theatre company to have funders that do not expect to make money on a show. Donors usually expect recognition, because they do not expect any money in return.

So, now you must choose "To NPO or not to NPO?" If your answer is "To NPO," then your next step is to obtain an accountant or lawyer to get any expert advice you may need. If you have a reasonable mission statement, you may even get assistance on a voluntary basis. Then you must follow the state guidelines for your state to register a NPO (corporation) business entity. There is usually a fee associated with this registration which can be anywhere from $30-$150, depending on your state. Then, you will need to file an application for tax-exempt 501(c)3 status. Once that is granted, you can begin accepting grants and donations.

If you have decided "Not to NPO", it is still wise to register your business entity. Most likely, you will want to either register as a Limited Liability Company (LLC) or a Corporation (Inc.) to protect yourself and separate your company and private finances. Here, too, you will need to follow state guidelines as they may vary between states.

Whether you NPO or not, creating a theatre venture will require paperwork, accounting, legal filings, insurance, and possibly many other business avenues that may seem unfamiliar. Take a deep breath, always get advice where you can, and then plow through. When the curtain comes up and you hear that applause, every bit of paperwork will be worth it.

Staff Writers

Theatre-Inc - See this Business's Listing

The staff writers of Theatre-Inc are comprised of former and current Theatre professionals who work with the company and write regularly as well as other professionals within the company with experience to lend to the Theatre World. Many of the staff writers have worked in multiple disciplines in theatre, ranging from directing, producing, design, acting, stage management and general management. These unique perspectives provide them with a depth of experience to address issues that often frustrate theatre professionals. But, sometimes we just like to share fun experiences and things that we ourselves find humorous, frustrating, or just outrageous.