The Forests, Trees and Open Spaces of 501(c)(3) Incorporation

I wrote the following post for Olive Grove Consulting's blog. Here it is for kicks and giggles.

It started when the State of California couldn’t pay its bills. It was 2008 and the bond freeze impacted many state agencies’ ability to disperse funds, including the Coastal Conservancy. The Coastal Conservancy was the largest funder of the Bay Area Open Space Council and we were in trouble.

The organization needed to change. Our funding sources needed to be diversified. We needed to broaden our programs to serve more people in order to attract new funders. And incorporation as a separate 501(c)(3) nonprofit became a topic of serious consideration at our Executive Committee meetings. Since our founding in 1990, the Open Space Council had been fiscally sponsored, first by Greenbelt Alliance then by the San Francisco Parks Alliance. There are great benefits of fiscal sponsorship, the biggest being that back office functions like HR, accounting, and legal are handled by the fiscal sponsor. That’s significant for our small staff of three.

But there are also challenges. A donation to the Open Space Council is really a donation to our fiscal sponsor, and same goes for the donor who made that donation. It’s like being on a date with a third person in the car and at the movie theater with you. Explaining the fiscal sponsor relationship is another sentence or two that you need to say, another sentence that can slow down or stop a donation from happening. And you’re reliant on another organization for your accounting system and reporting. Generally that means less visibility into and less control of the resources.

So we started down the road to incorporate as a separate 501(c)(3) nonprofit. Starting in 2011 we started working with Olive Grove Consulting to design and implement a new governance structure. We also started the application process at the local, state and federal levels to be a nonprofit corporation and to have tax-exempt status. We set up accounting systems and other internal systems, policies and procedures. We held our first Board meeting in November 2013 and received tax-exempt determination in June 2014.

It took three years. And in those three years we learned some lessons, including:

1. It takes a long time to incorporate an existing organization. The process wouldn’t be nearly as long if we decided to launch a new nonprofit from scratch. Sometimes I dream about how easy that must be. The slate would be blank. But we had history. You could call it baggage, or you could call it invested stakeholders who wanted to maintain the soul of the organization through this big change. We needed to have thoughtful conversations at almost every step of the way and we needed everyone to be on board. That takes time. Then there’s waiting for the IRS, but that’s a topic for another time.


2. This is not a one-person job. During our years in fiscal sponsorship we had an Executive Committee that served as a pseudo Board of Directors. They didn’t have fiscal responsibility for the organization (our fiscal sponsor’s Board had that), but they met regularly to set strategy, provide input on our workplan, and review finances. A workgroup consisting of one Executive Committee member, one staff member, our contract accountant, and Emily Hall fromOlive Grove met regularly to keep the incorporation process moving forward. This was important because it meant that the process was owned by more than one person. It also meant that different perspectives were included. With staff transitions and multiple interests at stake, this cross-functional workgroup ensured that the original intentions were maintained. Multiple people with different spheres of influence, content knowledge, and perspectives had ownership of the process and the outcomes.


3. Look for the forest amongst the trees. The process was messy at times. It was sometimes confusing and overwhelming. It was critical that we had an objective voice of reason to guide us. Olive Grove served in that critical role. With their facilitation we built a governance structure that makes sense for history, stakeholders, and goals. They facilitated meetings on complicated topics and they kept the ball moving forward. Together we outlined the steps we needed to take. When we found ourselves on a tangent, they brought us back to center. Olive Grove helped us see the forest for the trees.

We’re still learning lessons from incorporation. Receiving tax-exempt determination is a false ending for the incorporation process. The end of one process is really the start of another. We are continuing to build a new Board of Directors. We are near the end of the transition of our HR, accounting and legal functions to the Open Space Council from our fiscal sponsor. It’s not over yet. But we are happy that we can easily and freely say this:

Would you like to donate to the Bay Area Open Space Council? You can directly, without confusion or distraction, byclicking here.