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Forming and Establishing A Nonprofit Board Of Directors Video 4 of 4 Nonprofit Series (NEW 2020!) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hey guys, Toby Mathis
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from Anderson Business
Advisors and Law Group,
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and this is part four
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of a four-part series on nonprofits.
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Part four is specifically
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Forming & Establishing a
Nonprofit Board of Directors.
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So there's gonna be a few
questions that we're gonna
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go through, actually six
questions on this one.
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Number one is, can the
founder of a nonprofit
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also be on the board of directors?
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And the answer is, absolutely, you can.
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Just remember what I said
in a previous section.
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I said there's really three areas,
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there's the state, there's the feds,
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and there's third parties.
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This is gonna fall into the
category of third parties.
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This is your paperwork.
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You can choose to have
a board with 10 people.
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Depending on your state, you
can actually go down to one.
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I live in a state, Nevada,
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where you can have one board of director,
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you can have a one-person board, and yes,
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it could be the founder of that nonprofit.
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Generally speaking, I'm gonna say,
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hey, at least have a
couple outside directors,
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no matter what.
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There's lots of folks that you could
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either ask on your board,
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there's people that are used
to serving on nonprofit boards,
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there's professional outside
board members like myself,
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who actually, for a fee
you could actually say,
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hey, will you come on and make sure
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that I'm doing things right on my board,
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lead meetings, things like that.
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There's all sorts of
folks that are out there.
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You don't have to pay them a salary.
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A lot of 'em will do something
like a fringe benefits,
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or they'll do it at a very reduced fee.
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But the answer is yes, a founder can
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be on the board of directors.
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Now keep in mind when we
use board of directors,
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that is corporation terminology.
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I like to see nonprofits as a corporation.
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I like to see them run
by a board of directors,
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as opposed to a board of
trustees and things like that.
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That's my preference, that's
what the IRS is used to seeing,
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and we've never had one denied,
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so I tend to go with what
I know will always work.
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Are board of directors
of a nonprofit paid?
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The answer is, they can be, yes.
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Do you have to, no.
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Can a board of directors
be paid with something
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like tax-free fringe benefits?
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For example, if I joined public radio,
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maybe they give me some
access to some tickets
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that I can buy that aren't
available to the general public,
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because they, hey, I have a thousand seats
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at this particular concert.
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I'm still buyin' 'em.
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If they give 'em to me, now I'm receiving
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compensation, right?
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Then if they're giving
me something of value,
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for example, they gave me a car,
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I have to pay tax on the value of the car,
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unless it's 100% used
for business purposes,
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then it's the company,
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I'm gonna give it back to the company.
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They can be paid W-2, they
can be paid just benefits,
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there's just a ton of, same
thing in the for-profit realm
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as in the nonprofit realm.
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The one thing you wanna be aware of
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is that if you're paying
somebody who has a conflict,
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like hey, I set up a nonprofit,
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and I'm getting paid a high salary,
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you really should have a third party
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review it to make sure it's reasonable,
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if it's going to be a high salary.
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If you have somebody who's
making hundreds of thousands,
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or more than a million dollars a year,
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you need to make sure that it's reasonable
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and that they're not looking
at it as a distribution
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of profit or something like that.
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We don't wanna mess with the
exemption of the nonprofit,
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but yes, the board of
directors can be paid.
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It's commensurate with what they're doing.
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Can the treasurer and
president of a nonprofit
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be the same person?
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The answer to that one is yes, but again,
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you always look at it and
say, it depends on the state.
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I'm not aware of any restrictions
but you could actually
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have a one-person nonprofit here
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where all those categories are filled.
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Board of directors is one party,
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all of the officers are one person,
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it's usually gonna be a president,
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a treasurer, and a secretary.
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Sometimes it's president,
vice president, treasurer,
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and secretary, but whatever the case,
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you can have one-person corporations.
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If there's restrictions in your state,
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then we would look at the statute and say,
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hey, we would make sure
that you don't trip on that.
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And it's something that, technically,
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your state could change at a given moment.
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Now, remember, you have
creatures of state law,
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where we're filing it,
and then we also have
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the feds where we get our exemption.
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The feds don't have a restriction.
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We'd be looking at the state saying,
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hey, are there any restrictions on that?
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Can the founder of a
nonprofit receive a salary?
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The answer is absolutely
yes, and more importantly,
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that founder can actually have
control of the organization.
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They can have veto powers.
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They could also have something
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that they bequeath to third parties.
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I could give you my
powers and power of veto
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to my children or whatnot,
or to a surviving spouse,
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so that you keep control of the nonprofit
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even after your passing
or if you were disabled
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or if you just resigned,
you could make sure
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that you have a situation
where a member of your family,
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I sometimes joke about
the Clinton Foundation.
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I don't wanna get into politics,
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but when you saw Bill and Hillary
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pull off of that nonprofit,
the Clinton Foundation,
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they said, "Chelsea needs
to stay on the board."
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Chelsea, no doubt, has a degree
of control over that board.
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And so Bill and Hillary
felt very comfortable
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stepping off the board
of a company with many,
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many, many, many tens
of millions of dollars
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in that nonprofit, which
they were shepherding.
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Can a CEO also be on
the board of directors?
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Now, CEO is a term of art.
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You could have a CEO or
you could choose not to.
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You could have an executive director,
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or you could choose not to.
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But the answer is yes, you
can have an officer position
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and also be on the board of directors.
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It's very common.
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A lot of folks will say I wanna
have an executive director,
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somebody who's like the
chairman of the board,
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who leads the organization.
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Yes, that can still be the founder.
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These things you can exert a
great deal of control over,
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as long as it's not private inurement.
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It's not benefiting you,
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the profits don't go into your pocket.
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They're staying in that nonprofit,
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and it's doing what it's set up to do.
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There are really two
flavors of nonprofits,
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there's the private foundation realm,
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and there's the operating charity.
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The way I always look at it is,
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the operating charity does stuff
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for the benefit of third parties,
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and the private foundations
support those organizations
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that are doing stuff for the
benefit of third parties.
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It's much better to
operate in the category
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of being an operating charity,
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and you can absolutely be paid,
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and you can absolutely have a CEO,
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you can have a CFO, a COO,
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you can have different
categories of officers,
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up to you on how you categorize them.
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Remember, we have the
state, we have the federal,
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and then we have third parties.
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When we're giving fancy titles,
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it's what we're dealing
with third parties,
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we just have to make sure that
it's allowed by the state,
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and I'm not aware of any restrictions.
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Every company, you could determine to have
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an executive director, a CEO,
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or something along those lines.
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How does a nonprofit
organization pay its employees?
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And the answer's real simple,
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the same way a for-profit
pays its employees,
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wages or compensation for
services that are being provided
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or time being provided.
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This is where it gets different.
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A nonprofit is different from a for-profit
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in that a nonprofit does
not pay out its profits
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to those individuals, to its employees.
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So for example, if I am a
for-profit organization,
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I have shareholders,
I may issue dividends.
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You do not do that in a nonprofit,
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there's no such thing as
a dividend because there's
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no such thing as
shareholders in a nonprofit.
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I pay you for the work that you do.
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One of the reasons my clients,
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who have children and
they're worried about,
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they have some wealth
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and they're concerned about their kids,
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I love to put the kids
on a board of directors,
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where I can say here's
what your salary range is,
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maybe we adjust it for cost of living,
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but they have to do
things to earn that money,
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and they're receiving
that money in exchange
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for doing something as opposed
to just getting an estate.
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Here's a million bucks, give it to Junior
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and watch what he does.
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It's usually not good, right?
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Instead, we have the
money go into a nonprofit
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and then you say, "Junior,
you can serve on this board.
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"And by the way, I have some other folks
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"sitting on that board.
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"You're entitled to sit on that board
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"and you're entitled to be
paid a reasonable salary
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"for what you're doing.
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"Now you're doing something
that's helping the family name
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"or helping a group of people
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"that you believe it's important to help."
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I always look at Carnegie,
the richest man in the world
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in the late 1800s, 1900s,
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1899, whatever that would be. (chuckles)
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And you looked at what he set up,
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libraries all over the place,
and educational endowments,
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all these things that he did
that still go on to this day,
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I always think how important that is.
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Making it more modern,
take a look at IKEA.
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The owner of IKEA made sure
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that IKEA was held by several nonprofits
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and then he gave a minority
position to the children
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so they couldn't sell it off.
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He wanted to make sure
his dream continued on,
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and they'll have an income
stream forever, literally!
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So I look at those things
and think, it's just amazing.
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So a nonprofit organization can absolutely
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pay its employees.
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Those employees could
absolutely be your relatives
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or friends or people that care
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about the causes you care about,
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and they could absolutely
be paid a salary.
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And that's what makes them so attractive.
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And as they grow, because
they're not being taxed,
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it has the habit, when
we look at these things,
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of gaining much more momentum,
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than if they'd been run as
their for-profit counterparts,
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where everything's constantly
being diced by taxes.
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In a nonprofit, if I don't
wanna take the money out,
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I don't take the money out.
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It just keeps growing.
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There's no tax that's being due.
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If I did that with an
ordinary corporation,
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depending on when I did it,
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it used to be 39% tax was
the highest, now it's 21%,
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but then they would tax it
again when it came back out.
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You're never getting hit with those taxes.
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Just leave it in there, let it grow.
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If I need the money, take a salary out
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for the work that I'm doing.
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You could even do deferred
compensation plans
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and spread it out, there's
all sorts of things
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that you can do with a nonprofit.
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They're an extremely powerful vehicle.
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Well, that's it for the four-part series.
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You're always more than welcome to come
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to Anderson Business
Advisors at our website,
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Anderson Advisors, and learn more,
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watch the videos we post,
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but that was part four
of a four-part series.
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Thanks for joining me.
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Again, this was Toby Mathis
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from Anderson Business
Advisors and Law Group.
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