Q&A #10 – Is now a good time to start a 501(c)(3) subsidiary?

Question:  My 501(c)(6) chamber of commerce has long been debating whether to start a 501(c)(3) foundation subsidiary to help with fundraising for our educational programming. We have been developing plans for the foundation and wanted to start the process of formation this summer. However, considering the current crisis and the financial struggles all organizations are facing, we are not sure if now is a good time to form a new organization. Should we proceed as planned, or wait until the crisis subsides?

Answer:  This question surfaces a lot from 501(c)(6) entities and other non-501(c)(3) nonprofit organizations. The answer is almost always a strong yes. Even during this crisis, organizations should not hesitate to pursue this strategy as it will open doors to new opportunities and funding not previously available.

First, you should recognize that many chambers, professional associations, membership organizations and other similar nonprofit organizations have added a related 501(c)(3) foundation. This is a regular occurrence because, if done right, the benefit will far exceed the cost and effort.

Second, this is a very good strategy for a non-501(c)(3) nonprofit as it can transform your organization quickly. The two biggest advantages are new sources of funding (grants, contributions, sponsorships and legacy donations from planned giving efforts) not previously available, and access to programs, activities and federal, state, municipal and community-based partnerships to benefit at-need groups, research, education, and other benevolent activities.

Third, this crisis has already had one large impact on nonprofits in general: it has highlighted the need to pivot, be nimble, and think outside of the box. The idea to start a new foundation (which you say you have been discussing for many years) should be acted upon quickly so your organization will have more opportunities to pivot and react to changing economic conditions. What made sense before, you could argue, is even more compelling now.

Planning Tip – During a crisis there is a heightened sense of awareness. Be bold and use this time to take action to help your organization to be in the best position possible as the world around you is changing. Adding a new foundation can be a launch pad to transformation, opportunity and growth.

The downside is that the new foundation could be a distraction or an obstacle. However, I have only seen this happen when organizations did not plan well, received poor advice on setting up the governance structure, and failed to invest in a multi-year road map of how to integrate the two organizations so that a long-term synergistic culture and operating plan can evolve. With proper planning and execution, these pitfalls can be avoided, and the new foundation can put your chamber in a better position to respond to your members’ needs and have greater impact in your community.

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