Does a successful nonprofit organization benefit from forming a separate organization (usually an Auxiliary or Foundation) to focus on the important tasks of community outreach, fund raising, and public/donor relations? You’ve probably noticed some tax exempt organizations, including colleges, hospitals, and even museums, have a completely separate organization that focuses solely on those outside functions and not the mission of the “parent” nonprofit. Are the benefits of a parallel organization worth the confusion that is sure to arise?
For larger nonprofit Organization, a separate entity allows the organization to focus solely on those outside functions and not distract from the original purpose of the parent organization. Specific board members can be recruited for express purpose of raising funds while avoiding time consuming operational matters. Also, a separate legal entity may afford some legal protection of financial assets in the event of a lawsuit with the parent organization.
In my observation, most small to mid sized nonprofits do quite well without a separate entity. And in order to get the “best of both worlds,” some Boards establish a special committee focused on these outside tasks, but it’s all governed within one legal entity. This allows costs to be minimized, resources to be consolidated, and avoidance of possible confusion over the purpose and intent of the second entity.
While many larger nonprofit organizations benefit from setting-up Foundations or Auxiliary’s for the primary purpose of fundraising and awareness building, there is very little stopping your board from conducting these same functions quite effectively from within the organization. That said, if those efforts get too big and time consuming, some stakeholders may begin to feel it distracts and takes away from the primary exempt purpose/mission (but I suspect many nonprofits are a long way off from that happening).