facebook linkedin-square google-plus menu-arrow angle-left angle-right envelope angle-double-right level-up envelope phone map-marker

Q&A: The Nonprofit Entrepreneur

Legal Counsel for Philanthropy and the Nonprofit Sector

Information and resources on nonprofit law & regulation

Back To Top

Q&A: The Nonprofit Entrepreneur

  1. Can a nonprofit organization earn a profit? I get asked this all the time by people - including my volunteers - and I never seem able to give an answer that clears up their confusion.
  2. Here's my dilemma. Recently I was hired as a development director for a cultural organization. In the course of outlining our direct mail program for the coming year, I learned that my (fired) predecessor made off with our donor list. To make matters worse, he was hired by another organization in town and I know he's soliciting these misappropriated donors. What can we do? Can we sue for the list's return?

  1. Can a nonprofit organization earn a profit? I get asked this all the time by people - including my volunteers - and I never seem able to givean answer that clears up their confusion.

    Yes, nonprofit organizations can earn profits. In fact, most nonprofits should attempt to do so to ensure continued financial viability.

    The distinction between nonprofit organizations and for-profit companies lies in what is done with the profits. In the for-profit corporate setting, "earnings" are distributed to shareholders. In the nonprofit setting, "surpluses" are devoted to nonprofit purposes or retained, on behalf of the public, in an organization's fund balance. Surpluses may not, in IRS terminology, inure to the benefit of individuals (the provision of reasonable salaries to employees does not constitute private inurement).

    Still, the following misperception endures: "Nonprofit organizations are not supposed to act like businesses." In fact, nonprofits may conduct business as for-profit enterprises do so long as they 1) act in good faith to further the accomplishment of nonprofit purposes, and 2) prohibit their assets from being used for private benefit.

  2. Here's my dilemma. Recently I was hired as a development director for a cultural organization. In the course of outlining our direct mail program for the coming year, I learned that my (fired) predecessor made off with our donor list. To make matters worse, he was hired by another organization in town and I know he's soliciting these misappropriated donors. What can we do? Can we sue for the list's return?

    The mailing list belongs to your organization. In legal terms, it's considered to be a "trade secret" and is therefore proprietary to your organization.

    If the former employee will not return the list, you may wish to consider a number of legal remedies. First, you may seek an injunction to prevent the other organization from using the list.

    Second, you may sue to recover the list and all copies. On the downside, if your organization has freely handed out the mailing list in the past it may be difficult to show that the list is proprietary information.

    Third, you may seek compensatory damages against the former employee and the other organization, depending on its complicity in the matter. A potential problem here is that it may be difficult and time-consuming to measure, and thereby prove, the extent of monetary damages incurred by your organization.

    Fourth, depending on the laws in your state, you may be able to seek punitive damages or lodge a criminal complaint against the former employee.

Print this page