An Agricultural Nonprofit Still Has to Make a Profit

By Juliette Enfield, Penn State Extension Educator, Warren Co

A farm can provide benefits to a community that are not always easy to measure in economic terms. A farm can keep land in agricultural production, be used as a teaching tool or be used to grow food for charity. A for-profit farm may not have the capacity or time to focus on these types of educational or charitable activities. Quiet Creek Herb Farm and School for Country Living in Brookville, PA, Lundale Farm in Kimberton, PA, and The Rodale Institute in Kutztown, PA are a few examples of nonprofit agricultural organizations in Pennsylvania.  Quiet Creek Herb Farm and The Rodale Institute focus on agricultural and homesteading education through classes, publications, and research. Lundale Farm preserves farmland by leasing land to farmers.

A farm can be a valuable teaching tool.

What is a Nonprofit?
Churches, public schools, public clinics and hospitals, political organizations, research institutes, chambers of commerce, fraternal organizations, private foundations, museums, and public charities are all nonprofits. Nonprofits contribute to society by providing social and educational opportunities that we all enjoy. The most significant differences between a nonprofit organization and a for-profit business is that the nonprofit organization does not have to pay property tax, sales tax, or corporate income tax, and they have a charitable mission that drives the organization. The tax code used by nonprofit corporations is 501c3, which you may have heard of already. A typical for-profit business will pay the IRS taxes that amount to between 15-35% of their annual revenue. However, both nonprofits and for-profits have to earn enough revenue to cover their costs in order to function. Just like with any business, the nonprofit must fill a unique niche in order to earn its revenues, and should have a business plan. To determine whether or not your organization would fill a unique niche, research what other nonprofits in Pennsylvania are doing at www.guidestar.org .

The revenue made by a nonprofit organization is used for sustaining the organization and accomplishing its charitable mission, not for distribution to employees or shareholders. The only type of nonprofit organization structure that exists in Pennsylvania is a nonprofit corporation. Corporations have a unique structure that is very different from a sole proprietorship or a partnership. In contrast to sole proprietorships and partnerships, corporations allow business owners to claim the business’s assets instead of the owners’ personal assets if debt or legal issues arise. The state in which the corporation is created assumes some liability for the business and therefore, all finances of the corporation, including salaries, expenditures and revenues must be made publicly accessible. The nonprofit corporation can work with an accountant to keep detailed financial records which they must submit to the IRS and the Department of State every year. These agencies could take away tax exempt status if the nonprofit fails to file these records or if they are generating income that does not relate to their stated mission. In addition to having a sustainable business plan, nonprofit corporations are required to have a board of directors and a fundraising plan.

The Board of Directors
The board of directors must have a protocol for voting on operating procedures for the organization as well as a president, a treasurer, and a secretary. The operating procedures, or bylaws, are voted in and agreed upon by the board. A business attorney can help with the creation of the bylaws. The complexity of the bylaws is up to the organization but they can include rules such as board meeting procedures and roles of employees.  Board directors are either employees of the nonprofit or volunteers who share a passion for the organizations’ mission. The board is responsible for keeping the organization true to its mission, and it ensures that programs and plans are implemented. Although the board of directors is a mandatory part of a nonprofit, offering additional board memberships is optional. Additional members can help to steer the organization, offer diverse skill sets, and help with fundraising by paying membership dues. Board members have to be at least 18 years old and do not have to be residents of Pennsylvania. NOLO gives some great considerations for forming a board.


The board is responsible for keeping the organization true to its mission and it ensures that programs and plans are implemented.

Fundraising
Fundraising is an essential activity for nonprofits to engage in since revenues are low and accomplishing any mission costs money. Fundraising includes soliciting donations and applying for grants. Nonprofit organizations accept donations from businesses and individuals. These donations are tax-deductible for the donor, which is an incentive to donate. Many public and private grants are available for nonprofit organizations.  Since fundraising is an important part of a nonprofit organization, there should be a fundraising coordinator or grant writer on staff or on the board. For example, if the goal of your agricultural organization is education, you may need to seek grants that will cover the costs for school children to come to your farm. Penn State Extension offers grant writing workshops. Look online for dates and locations.

Although a nonprofit organization is mission driven and tax exempt, it has to be just as competitive as a for-profit business in order to succeed. Critical components of a nonprofit include a well thought out mission and business plan, a committed board of directors, a fundraising plan, an attorney and an accountant.

For more information on nonprofit management, The Pennsylvania Association of Nonprofit Organizations offers workshops, publications, and conferences. Additional questions about forming an agricultural nonprofit in Pennsylvania can be directed to the Penn State Agricultural Law Resource and Reference Center.

Choosing a Legal Structure for Your Agricultural Business

by Heather Mikulas, Extension Educator, Allegheny Co.

Choosing a legal structure for your business is one of those tasks that can feel overwhelming to the small farm or value-added business enterprise.  The reasons for researching, selecting, and creating your business's legal framework are many.  This guide is meant to serve as an overview and a starting point for a conversation with your accountant and attorney, with the end goal of selecting a structure which shields the primary assets of the owner from any type of potential litigation or liability claim that may occur from business activities.

Sole Proprietorship
Hanging a shingle is an easy, fast way to begin making business transactions.  This straightforward approach automatically puts your business in the category of a sole proprietorship.  The business is you, and you are the business for all intents and purposes.  Nothing has to be done to set up this arrangement, unless the business is operating under a fictitious name.  The concern for the business owner is that there is no legal framework to shield the business owner's individual assets from those of the business.

Partnership
A partnership is a single company owned by two or more people, and may need to be registered with the State (Pennsylvania does not require registration by General Partnerships).  Each partner contributes to all aspects of the business's management plan, financials, and share of profits and losses, and should include an exit or dissolution plan.  Profits or losses from the partnership pass through to the named partners at tax time, rather than having the business file taxes.

Limited Liability Corporation (LLC)
A very common structure small businesses use is a LLC, which stands for Limited Liability Corporation.  It provides the liability protection of a corporation with the tax structure of a partnership, while providing for operational flexibility.

Non-Profit
Non-profit status, or incorporating as a 501(c)3 is unusual for agricultural enterprises, but not unheard of.  Farms with a mission focused on food justice or education, for example, are those that may qualify for this status.  Surplus revenue must be used to achieve the mission of the business, rather than be dispersed as profit.

Cooperative
The cooperative is owned by those who use its services, and profits are distributed to the user-owners.  There is a board and members have voting rights.  This is common in agriculture, where high capital infrastructure such as packing, storage, trucks, or processing facilities can be purchased, used, and collectively owned by cooperative members to the benefit of all.  If there are surplus profits, coop members are taxed once on the profits and not at the corporate level.

C Corporation
The C corporation is in and of itself a legal entity liable for its potential debts.  This is a complex structure which is usually reserved for large companies with many employees, and is not common in the family farm or business model.

S Corporation
Profits, and therefore taxes, can pass through the S corporation to the individual shareholders.  It is possible to create an S Corp sub-chapter on an LLC.  As in the C corporation, this structure is not common with farms and small food businesses.

In closing, it is wise for the small agriculture business owner to be educated about business structures and liability implications in order to protect primary assets.  A small amount of planning and investment in engaging professionals where needed can protect the future of the business and its owners.

Additional Resources
Ag Risk Center at University of Minnesota
Penn State University Ag Law Center
Pennsylvania Department of Revenue
U.S. Small Business Administration
UC Davis Small Farm Center
USDA Risk Management