How to Start an International Nonprofit

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In order to begin international operations with a nonprofit corporation, it is critical to first and foremost create the flagship nonprofit within the United States. Click ­here to read my previous article outlining the necessary steps to create a nonprofit corporation in the U.S.

Nonprofits are mission-oriented entities created to improve the lives of the communities they serve. Their tax-exempt status allows them to fulfill their mission by keeping expenses as low as possible. In order to maintain tax-exempt status, a U.S. nonprofit must be especially cautious when expanding into foreign countries. Particularly, when a nonprofit enters the global market, it will face new challenges that could threaten that status.

One of the first things that an international nonprofit corporation must review is how to structure their relationship with their overseas branches or chapters. There are a number of options to consider. Most commonly, an international nonprofit will do one of the following:

(i) Form a wholly owned subsidiary,

(ii) Begin a joint venture with local business people, or

(iii) Franchise their business.

Depending on whether the nonprofit wants to maintain direct control over their foreign branch or partner with local experts and community members, one of these business structures may be a better fit than the others.

Often, a nonprofit parent company will need to provide funding to help launch their international branch. Structuring their funding in a way that won’t jeopardize the tax deductibility of donations to the domestic nonprofit requires an in-depth knowledge of the law.

For instance, according IRS Revenue Ruling 66-79, if a domestic nonprofit solicits donor funds to be used by a foreign charitable organization, the domestic nonprofit must maintain a substantial amount of control over the ultimate use of those funds in order for them to be tax deductible. Failing to maintain such control, among other things, could jeopardize a nonprofit’s relationship with its most important donors.

Further, structuring the requisite degree of control over international chapters is accomplished first by the appropriate construction of the foreign subsidiary’s corporate bylaws, but this is only the first step. Consistent and practical transparency is essential and requires regular outreach, supervision, information gathering and, where necessary, investigation. Because different countries approach their dominion over non-profit organizations from different constitutional, legal, and regulatory frameworks, the parent organization must create and maintain a system of control and transparency that efficiently protects its interests.

As such, a nonprofit that is considering operating overseas should consult with an experienced attorney that can advise how best to protect their organization while continuing to help the community they serve. Please contact our offices today at ahpierce@aaronpiercelaw.com or at (212) 882-1752 if you are considering international expansion of your nonprofit.        

Aaron Pierce
(212) 882-1752
299 Broadway, Suite 1405
New York, NY 10007
ahpierce@aaronpiercelaw.com
www.aaronpiercelaw.com

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