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Pro Bono for 501(c)(3)
There seems to be a misconception that it's easy to find an attorney to setup your 501(c)(3) nonprofit organization for you for free. I just wanted to take some time to thresh out what is actually going on.
Before I jump in too deep, I don't want you to misinterpret what I'm saying. I'm not saying it doesn't happen, and I'm also not saying it doesn't happen often. At the time of this writing, I have two pro bono clients who I am starting 501(c)(3) organizations for. One of them is a very good friend of mine and the other is a cause I really feel strongly about. I, like many other attorneys, always maintain at least one pro bono case, but there are some issues with believing that your cause is going to be our chosen pro bono case. Strangely, they're not all financial or workload reasons.
The first reason is that most nonprofits have no need for 501(c)(3). Many don't even need to be a nonprofit. The major advantage of a nonprofit entity is that it doesn't pay tax on earnings. You know who else doesn't pay tax on earnings? Companies that don't earn. That's right. If your company has $0 in earnings at the end of your fiscal year, it pays $0 in tax. You will, however, be taxed on any amount you pay to the owners as equity or dividends, which is fair because nonprofits are forbidden from paying any amount to the owners as equity or dividends. As for not needing 501(c)(3), its major advantage is the fact that contributions to your nonprofit will then be recognized as tax deductible on that individual's own tax return. If you don't receive a significant amount of money from contributions, this won't be worth it. Why? Because there's a $300 or $750 filing fee (depending on expected revenue) to even file to be recognized as a 501(c)(3) through the IRS. You'll have to make up that extra cost in additional revenues.
Would you be surprised to know that most charities, like most businesses, fail? If your business is likely to fail, and the attorney you seek sees this, how likely is he going to be to put in the large amount of work required to setup your charity. It takes about 9 months from start to finish to setup a charity if things go smoothly, so he or she is looking to make sure that you're going to stick around 9 months. For anyone practical, that means that any project that is for a cause that will be gone in under 9 months isn't worth taking on.
For me, it takes about 40 hours worth of work to setup a 501(c)(3). That's time I spend working, and if I'm doing it for free, it's time I'm not earning. I'm actually surprised at how many people don't realize just how much an attorney is giving up when he or she does a pro bono case. At minimum wage, that's still $290. You don't even want to know what that is at my billable rate. In order to combat this loss of revenue, it is imperative that you offer the attorney something. Some good examples are free advertising through the nonprofit as a "sponsor member," a continued client for the legal concerns after formation, a spot in a newsletter for advertising, introduction to numerous potential clients, or something else that we attorneys value.
Now, some attorneys charge $10,000 or more to start a nonprofit. I believe that's a bit ridiculous because nonprofits are given the status because they perform some function we value as a society. By giving to a charity, we are getting something back ourselves. That said, with nonprofits constantly starting up, it's impossible for every single one of them to have their cause supported by a lawyer working pro bono. I sincerely wish yours does, but the odds are not in your favor. One of my clients waited 3 years before he finally got an attorney who could start his charity for free. Below are a few things that can help you get your pro bono lawyer.
Things you can do to entice an attorney to take your case:
- Have a genuinely good cause and be passionate about it.
- Do your homework and be familiar with the process.
- Understand the costs upfront. (filing fees, annual reports, printing, notarizing, etc)
- Give your attorney the opportunity to use this as advertising. (We spend tons of money branding ourselves)
- Be flexible. (We need to want to work with you, not against you)
- Have the financial statements completed and organized.
- Have more than one person starting the nonprofit with you. (1 person = more likely to fail)