Can a club also engage in commercial activities?
November 28, 2022 | 50,00 EUR | answered by Otto Krebs
Dear Attorney specializing in association law,
My name is Paul Krüger and I am a board member of a non-profit organization dedicated to environmental protection. Lately, we have been considering the possibility of engaging in commercial activities to improve our financial situation and better implement our projects.
Currently, our organization is recognized as a non-profit and we mainly finance ourselves through donations and grants. However, we often struggle with financial constraints as the funding is not always sufficient to carry out all of our initiatives.
We have heard that non-profit organizations are generally allowed to engage in commercial activities as long as the primary purpose of the organization is not compromised and the income is used exclusively for charitable purposes. However, we are unsure about the type of business we are allowed to conduct and how we can ensure that we will continue to be recognized as a non-profit.
Could you please provide us with more information on the possibilities and limitations when an organization wants to undertake commercial activities? How can we ensure that we do not encounter any tax or legal issues and continue to support our charitable projects?
Thank you in advance for your assistance.
Sincerely,
Paul Krüger
Dear Mr. Krüger,
Thank you for your inquiry regarding the inclusion of commercial activities in your non-profit organization. It is generally possible for non-profit organizations to engage in commercial activities in addition to their usual tax-exempt activities. However, there are some important legal and tax aspects that you must consider in order to remain recognized as a non-profit and avoid any issues with the tax authorities.
Firstly, it is important to know that commercial activities are only allowed for a non-profit organization if they serve the main purpose of the organization and the revenues are used exclusively for charitable purposes. This means that profits from commercial activities cannot be distributed to members but must be used solely to achieve the charitable goals of the organization.
There are various types of commercial activities that an organization can engage in, such as selling goods or services, organizing events, or renting out spaces. It is important that these activities are in line with the organization's purpose and do not jeopardize its main objective.
To ensure that you do not encounter any tax or legal issues, I recommend creating a detailed business plan for the planned commercial activities. This plan should outline how the revenues will be used and how the activities fit into the overall concept of the organization. It is also advisable to consult with a tax advisor or a lawyer specializing in non-profit law to ensure that all legal requirements are met.
It is also important to regularly assess whether the commercial activities actually serve the charitable purpose and that the revenues are being used accordingly. The tax authorities can conduct audits at any time to ensure that the organization continues to meet the requirements for non-profit status.
In conclusion, engaging in commercial activities can be a good way for non-profit organizations to improve their financial situation and better implement projects. However, it is important to educate yourself and seek advice to avoid potential risks.
I hope this information is helpful and I am available for any further questions.
Sincerely,
Otto Krebs, Lawyer specializing in non-profit law
