As your nonprofit grows and evolves, it may find that its mission or focus area needs to change to better reflect its work or respond to changing community needs. While it is possible for a nonprofit to change its mission statement or focus area, there are important considerations and steps to follow to ensure compliance with legal and tax requirements.
1. Can a Nonprofit Change Its Mission Statement or Focus Area?
Yes, a nonprofit can change its mission statement or focus area, but there are several steps you need to take. Nonprofits are generally allowed to amend their mission statements, but doing so may have some implications depending on the nature of the change. The mission statement is central to a nonprofit’s purpose, and any significant changes should align with the organization's tax-exempt status under 501(c)(3) of the Internal Revenue Code.
2. What Steps Should We Take to Change the Mission Statement or Focus Area?
To change your nonprofit’s mission statement or focus area, you’ll typically need to follow these steps:
Board Approval: The first step is to have your board of directors approve the proposed changes. This may require a formal vote during a board meeting, and it's essential to keep thorough minutes of the discussion and vote.
Amend the Articles of Incorporation: If the change in the mission statement is significant, you'll need to amend your nonprofit's Articles of Incorporation. This is an important legal document that outlines your nonprofit’s purpose and structure, including the mission. Amendments must be filed with the state where your nonprofit is incorporated, typically through the state’s Secretary of State office.
Update IRS and State Filings: If your nonprofit is a 501(c)(3) organization, you'll need to notify the IRS of the change. This can be done by filing Form 990 (your annual information return), and in some cases, you may need to submit a Form 1023 or Form 1023-EZ amendment, depending on the nature of the change. You should also update any state-level filings, including those with the state’s Attorney General or other regulating bodies for charitable organizations.
3. Do We Need to Notify Donors or Stakeholders?
While you are not legally required to notify individual donors about changes to your mission statement or focus area, it is good practice to communicate any significant changes to key stakeholders, including major donors, funders, and partners. This will help maintain transparency and ensure that stakeholders understand the organization’s evolving goals.
If the changes are related to how you use donated funds, especially if donors contributed for specific purposes, you should review the restrictions on those donations and ensure that you are in compliance with any donor-imposed limitations. If necessary, you may need to consult with donors to ensure their continued support.
4. Will Changing the Mission Affect Our Tax-Exempt Status?
Changing your nonprofit’s mission statement or focus area can potentially affect your 501(c)(3) status if the new mission is not consistent with the requirements for tax-exempt organizations. The IRS requires that a 501(c)(3) organization must be organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, among others.
If your mission change shifts away from these purposes, you may jeopardize your nonprofit’s tax-exempt status.
For example, changing your mission to include political advocacy or profit-making activities could violate your nonprofit’s tax-exempt status. It’s important to ensure that your new mission aligns with the IRS’s requirements for a charitable organization.
5. What Are the Risks of Changing the Mission Statement?
Changing your nonprofit’s mission statement or focus area can be a strategic move, but it’s important to consider the following risks:
Donor Expectations: If you have donors who contributed with the expectation that their funds would support specific activities related to the old mission, you may face challenges if your new mission significantly changes how you use donations. Always ensure that you’re complying with donor restrictions.
IRS Scrutiny: Any significant changes to your nonprofit’s mission could draw the attention of the IRS, especially if the change is drastic or if the organization’s tax-exempt status could be questioned.
Public Perception: Changing your mission could also affect how the public perceives your organization. It’s important to communicate clearly and transparently about why the change is happening and how it will benefit your community or target audience.
Conclusion
Nonprofits have the flexibility to change their mission statement or focus area as their needs and objectives evolve. However, these changes must be handled carefully to ensure compliance with state and federal regulations, protect your organization’s tax-exempt status, and maintain the trust of your stakeholders. Always consult legal and tax professionals if you’re uncertain about how the changes may impact your organization.
At InstantNonprofit, we can guide you through the process of updating your Articles of Incorporation and other necessary filings to ensure that your nonprofit remains compliant with all applicable laws and regulations.