Arts Organizations and History

ARTS INSTITUTIONS

One result of the political and social upheaval of the last 400 years has been
the establishment of institutions designed to provide continuing support and
recognition for the artist and the arts. In much of the world, the performing
arts are part of a state-supported system and are operated by resident managers
with administrative staffs. Performing and visual arts centers for opera,
dance, theater, and music as well as museums reserved exclusively for art, history,
and science are integral parts of many communities in the world.
In the United States, modest governmental backing for the arts is a recent
phenomenon. Fund-matching grants, special project support, and a taxation
system designed to promote deductible donations by individuals and corporations
continue to be the extent of government involvement in the arts. More
recently, in the last hundred years, the United States government opted for an
alternative system that encouraged the creation of tax-exempt, not-for-profi t
corporations to supply and distribute the arts and culture in society.
The increasing complexity of an industrially and technologically based society
hastened the shift from the artist-manager as the dominant approach to
organizing and presenting the arts. As many communities began to establish
arts institutions late in the nineteenth century (e.g., museums and symphony
orchestras were the early leaders in this transition), year-round management
experts began to emerge. Many arts institutions now appear to be organized
along patterns similar to large business corporations.
Today, the role of the artist and the manager and the degree of control each
has over her respective domains vary from art form to art form. Many small
arts organizations are still created and managed by artist–managers. For example,
a small theater company in New York City such as The Red Bull Theater
(www.redbulltheater.com ) is led by an artistic director who also functions as
the manager. Like many small arts organizations, a business manager helps
the artist–manager with day-to-day operations of the organization

A BRIEF HISTORICAL OVERVIEW

Let’s examine a few select points in Western history to trace the development of
the management function in the arts. As has been noted, the artist–manager
is a well-established pattern in the arts. Although this pattern of management
has not changed much in the last 2,000 years, the demands placed on this
individual have increased to the point where the artist–manager position is
now only one of many ways to organize the presentation of arts events. Of
course this brief overview is not intended to substitute for course work or
readings in theater, dance, music, art, or media history.

Ancient times

As the centers of civilization grew, so did those functions we associate with the
arts. The fi rst examples of performance management were the public assemblies
associated with religious rites in early societies. These performances
were “managed” by the priest and were enmeshed in the fabric of a society.
The theatrical trappings of costumes, dramatic settings, music, movement,
and so on, all supported and heightened the impact of the event. Ultimately,
though, these events were not an expression of the creative drive of a people,
but rather a way of controlling and molding a culture. However, these staged
events did provide a model for organizing large-scale public gatherings.
The beginnings of a system of state-sponsored play festivals can be traced to
the Greeks around 534 BCE. These festivals required the management skills
of planning, organizing, leading, and controlling, much as they do today.
Typically, a principal magistrate, the archon eponymous, supervised the production
of the play festivals sponsored in Athens. Financial support came from
the richer citizens ( choregoi), and the cities provided the facilities. The playwright
functioned as the director and had something akin to total artistic control
over the show. 1
Museums were very much a part of the Greek culture. The word museum, in
fact, comes from “the Greek mouseion, a temple of the muses. ” 2 Neil Kotler
and Philip Kotler note that the early museums in places like Alexandria “functioned
as a scholar’s library, a research center, and a contemplative retreat. ” 3
Ancient Rome often displayed collections of items taken through military
campaigns. The Catholic Church also amassed a considerable collection
of art. 4
The Romans produced state-sponsored arts festivals as part of an overall cycle
of public events throughout the year. City magistrates were responsible for
screening and coordinating the entertainment for their communities. The
managers ( domini) acted as producers, bringing the play and the performers
to the festivals. These early managers arranged all the elements needed for the

production with the fi nancial support of the local magistrate. According to
research in theater history, as many as 100 days a year 5 were committed to the
various theater festivals of ancient Rome. If this schedule is indeed accurate, a
great deal of managerial skill must have been required to coordinate and produce
these events.
With the decline of Rome came the dissolution of the state-sponsored festivals.
The breakup of the Empire did not mean that all artistic activity came to
a halt. However, the transition into what is often called the Middle Ages left
society without a developing dramatic literature to generate works for performance.
The disappearance of organized fi nancing and facilities also made it
impossible to sustain an ongoing arts community. Performance groups therefore
resorted to touring as a means of survival. Smaller scale community festivals
helped provide opportunities for the itinerant artists to eke out a living.
Overall, Western history has not provided much evidence of signifi cant artistic
activity in Europe during this time.
Other cultures were, of course, developing indigenous forms of music, dance,
and theater. The arts were very much a part of Byzantium, India, and China.
While Europe was struggling, other cultures were establishing forms of dance,
theater, music, and visual arts that are with us today. Varying degrees of state
and private sponsorship were involved. The role of the manager did not radically
differ in these cultures because the functions required to organize and
coordinate arts events were the same.

The Middle Ages

The Church was the producer of many sanctioned performances during the
Middle Ages. The performance of liturgical drama, which served as a type of
religious instruction, originally resided within the management structure of
the Church. As communities developed and the overall economic environment
improved, this drama moved outdoors and became part of public pageants
and festivals, using stages mounted on portable wagons. Nonliturgical
drama and various forms of popular entertainment, such as jugglers and
mimes, were part of a rebirth of performance.
By the fourteenth century, the Church had little control over the proliferating
performances. A system of patronage and sponsorship by the trade guilds led
to an expanding role for the manager–director. Historians Oscar Brockett and
Franklin Hildy note that during the fi fteenth and sixteenth centuries:
…complex productions required careful organization, for the handling
of casts that sometimes included as many as 300 actors, of complex
special effects, and large sums of money could not be left to chance.
Consequently, the director (or stage manager, or pageant master) was of

considerable importance. …Often this position was given to a member
of the guild, but in some instances a “pageant master ” was put under
contract for a number of years at an annual salary. For example, at
Coventry in 1454 the Smiths contracted for a period of twelve years
with Thomas Colclow, who was to supply everything needed except the
wagons and costumes. The pageant master secured actors, arranged
rehearsals, and took charge of every phase of production. 6
There also are records of various productions making some kind of a profi t.
According to Brockett and Hildy there is the example “At Reims in 1490, 5616
persons paid admissions ” 7 to a series of municipally sponsored performances.
One might conjecture if admission was charged, then someone had to probably
manage and coordinate the sales much as a ticket offi ce manager would
today.

The Renaissance

The continuing surge of the arts was dramatic throughout the Renaissance.
The social, political, economic, and cultural environments were undergoing
changes that fundamentally altered people’s perceptions of the world. The
rediscovery of the Greeks opened up the creative spirit of the times. During
the fourteenth to sixteenth centuries, neoclassical theater began to fl ourish,
opera and ballet were born, and the role of the arts manager burgeoned.
In opera, theater, and dance, the expansion of literature was accompanied
by the construction of performance spaces that took advantage of the stage
technology of the time. This in turn led to the rise of stage crew specialists in
such areas as rigging, lighting, special effects, and costumes. The coordination
required of the increasingly complex productions helped solidify many of the
traditional roles in backstage operations and management.
In the late sixteenth century, opera was born in Italy out of the intermezzi ,
which was a form of entertainment that occurred between the fi ve-act dramas
of the time. In 1594, the fi rst opera, Dafne, authored by Ottavio Rinuccini
and Giulio Caccini, music by Jacopo Peri, premiered and laid the foundation
for an entire art form. This work was born out of the Camerata of Florence,
a group of scholars interested in “creating plays similar to ancient Greek
tragedies. ” 8
The court dance of the thirteenth and fourteenth centuries helped forge a path
for the creation of ballet. One of the key developments in the seventeenth
century was the development of schools of dance training. One of the more
prominent academies was established in 1661. “Italian musician, composer,
dancer, mime and musical administrator, Jean Basptiste Lully ” 9 was appointed
by Louis XIV to direct the Royale Academies of Dance and Music. 10 The fi rst

ballet, Ballet Comique de la Reine, was performed in 1581 in the French court
at Fontainebleau. 11 As with opera, specialized production and management
techniques evolved over the centuries to support the art form.
Private collections of art work and artifacts were also built during this time.
However, access to the collections was very limited. Public museums did not
become popular until the eighteenth century. 12

Management challenges
As is the case today, fi nding fi nancial support was an ongoing activity of the
early artist–managers. Church support, royal patronage, and shareholder
arrangements were the chief means of fi nancing work. The shares sold to people
helped provide the resources needed to pay for salaries and production
support. Management functions were expanded to include overseeing the distribution
of any profi ts to the shareholders.
The other major problem that managers and artists grappled with was censorship.
Throughout history, the performing and visual arts have had to contend
with varying degrees of control from both the church and the state. The selection
of plays, the access to performance spaces, and sometimes even the selection
of performers have been subject to severe constraints. The arts manager is
often placed in the middle of the battle between an artist seeking an avenue
of expression and a state or religious group attempting to suppress the work.
We see the legacy of the uneasy relationship between the arts and society in
the occasional controversies that arise when it comes to funding the arts at
the local, state, or federal level.

The seventeenth through nineteenth centuries
In many European countries during this time, the arts continued to grow
and fl ourish. Playwrights, directors, composers, musicians, dancers, and
singers found work in newly created companies and institutions. In France,
the theater, opera, and ballet companies were organized in state-run facilities,
and the performers received salaries and pensions. Germany established
a state theater by 1767. It became the foundation for a national network
of subsidized arts institutions. England also had a thriving performing arts
community. The Education Act of 1870 and the Local Governments Act of
1888 helped promote the growth of museums and performing arts facilities
throughout Great Britain. 13 British support for museums was well-rooted in
the nineteenth century. However, the fi rst Arts Council in England was not
created until 1946. 14 Throughout the seventeenth to nineteenth centuries,
especially on the Continent, the formalization of management structures andsystems to operate the state theaters solidifi ed the role of the arts manager.

In the United States, theatrical presentations were made up of touring groups
performing varied programs in cities across the nation. The development of
the railroad system in America assisted with the spread of touring groups and
artists in the eighteenth and nineteenth centuries. The local theater venue
often contained stock sets that were used by the performers, who brought
their own costumes. The expanding rail system of the mid-nineteenth century
helped support an extensive touring network of performing groups.
Companies were formed and disbanded almost constantly, and no permanent
theater companies were established. The management structure was dominated
by the producers and booking agents who arranged the tours. The control
of most theaters eventually fell into the hands of these booking agents.
A monopoly known as The Syndicate controlled what was available for viewing
around the country. This monopoly was supplanted by another group
of theater owners, the Shuberts. The Shubert brothers, who started out in
Syracuse, New York, created a management dynasty that lasts to this day. 15
Unlike the impermanent theater, symphony orchestras and opera companies
began to secure a more stable place in the larger metropolitan areas in
the United States. For example, the support of wealthy patrons made it possible
to establish symphony orchestras in New York City (1842) and Boston
(1881). Opera, which had been performed in the United States since early
in the eighteenth century, found its fi rst home in the Metropolitan Opera in
1883.16 Dance was often included in touring theatrical productions in the
eighteenth and nineteenth centuries. European dance stars also regularly
toured the country. However, permanent resident dance companies were not
a regular part of the arts scene until the twentieth century.
Museums developed in a uniquely American style according to Kotler and
Kotler. As they point out, “The great majority of U.S. museums, by contrast,
were created by individuals, families, and communities to celebrate and commemorate
local and regional traditions and to enlighten and entertain people
in the local communities. ” 17 They point to a city like Charleston, South
Carolina, as a site of an early American museum (1773).

The twentieth century

The role of management increased as the continued growth of the arts accelerated.
Despite two world wars, European arts institutions expanded into
smaller communities, developing national networks of performing spaces
and providing jobs for managers and artists. Seasons expanded, repertories
grew, and new facilities were constructed — especially after World War
II — in an overall environment of support from the government. As noted,
England eventually established a state-supported system for the arts after
the war.

In Europe and the United States, the new technologies of radio and fi lm signifi
cantly changed attendance patterns at live performance events. The theater
in the United States, for example, saw a rapid decline in attendance by the
1920s. 18 Because there were no resident theater companies, it was diffi cult to
keep a loyal audience base such as existed for the few opera and symphony
groups in the country.
Later in the twentieth century, the rise of the off-Broadway and regional theater
system helped renew the theater and, at the same time, helped build a
base for what were to become established organizations.
The more experimental, but still profi t-driven, off-Broadway system was born
in the early 1950s. The not-for-profi t regional theater network was built from
the Barter Theater in Virginia (1932), the Alley Theatre in Houston (1947),
the Arena Stage in Washington, D.C. (1950), and the Actor’s Workshop in San
Francisco (1952). These theaters formed the nucleus of the new distribution
system for theater in America. 19
The need for good managers escalated in the professional world, and because
of the unprecedented baby boom after the war, the educational system —
especially colleges and universities — expanded offerings in the arts.
Community and campus performing arts centers helped establish a new network
for touring and provided local groups with venues to use. Managers
were needed to operate the new multimillion-dollar complexes and to book
events throughout the year.
Opera fi rst spread beyond New York into the major metropolitan areas of
Chicago, San Francisco, Philadelphia, St. Louis, and New Orleans. However,
after the Great Depression, only New York and San Francisco were able
to hold onto their companies. 20 The support in the 1950s from the Ford
Foundation, among others, helped bring opera to the American arts scene. By
the early 1970s, 27 opera companies were in operation. 21 As of July 2007 the
Opera America Web site lists 118 major opera companies as members. Part of
this growth was due to the NEA’s matching grant programs, which enabled
many companies to professionalize their management.
Until the early 1960s, dance companies were in limited supply in the United
States. The American Ballet Theatre, the New York City Ballet, and the San
Francisco Ballet topped the list of professional companies. Ballet West in Utah
and Ruth Page’s dancers, who were associated with the Chicago Lyric Opera,
offered regular programs with their semiprofessional companies. 22 At the same
time, modern dance companies were being operated on very tight budgets by
such pioneers as Martha Graham, Alvin Ailey, Merce Cunningham, José Limon,
and Paul Taylor. Their staff resources and their seasons were very limited.
The Ford Foundation in the 1960s and the NEA in the 1970s helped create a
new national support system for ballet and later for modern dance. Although

these groups still struggle, there are now more than 557 dance companies that
operate, according to data collected by the NEA in 2002. 23
Symphony orchestras have also grown in number over the last 30 years. According
to the NEA, in 2002 there were 841 symphony orchestras and chamber music
organizations in the United States. 24 It is also estimated that in 1992 there were
3,105 U.S. museums and art galleries, 2,749 of which were tax-exempt. 25
In 1846 Congress accepted a bequest of the late James Smithson that led to
the establishment of the Smithsonian, one of America’s premier museums. 26
Business leaders and later philanthropists such as Andrew Carnegie, Marshall
Field, and Julie Rosenwald helped found museums and libraries in the late
nineteenth century in cities such as New York and Chicago. These museums
continued to evolve and grow in the twentieth century to become the major
cultural institutions we know today. 27

The twenty-fi rst century

The expansion period in the arts seems to be slowing now that most communities
have established visual and performing arts institutions or centers. The
continuing struggle for operating funds has been accelerated in recent years
as the competition for support has increased. Signifi cant increases in funding
from the state and federal government appears to be an unrealistic expectation.
Demand is increasing for resources to assist with social programs, medical
research, and education. Foundation, corporate, and individual support is
sought by increasingly sophisticated fundraising initiatives from all kinds of
not-for-profi t organizations. Within this complex mix of activities, the everadvancing
boundaries of technology are also having an impact on arts organizations.
The ease with which information can be accessed through the
Internet has also meant arts organizations have had to add or contract for
skilled people to manage Web sites and the information fl ow to the public.
The expansion of the traditional relationships of the arts organization to its
audiences is also evolving. Arts organizations are adapting to this new world
of 24/7 access to better connect with their current and potential audiences.
As has been noted, the expansion of the railroad system in the nineteenth
century had a signifi cant impact on the reach and impact of the arts. In many
ways, an even faster technological change process is under way today that
affects how arts organizations will meet the needs of future audiences.

International perspective

Meanwhile in Europe, the long-standing practice of government subsidies is
being reevaluated. The model adopted is the American approach of a mix of

private and public support for the arts. Many performing and visual arts organizations
are scrambling to develop the expertise to become successful fundraisers
to maintain their current levels of operation. The seeking of corporate
or business sponsorships for arts organizations and festivals has now become
a standard expectation of European arts organizations.
In England there have been signifi cant struggles over the level of government
support for the arts. For example, government support has shifted away from
ongoing direct subsidies tapping revenue from lottery sales. In some cases this
has proven to be a boon to arts organizations. Lottery funding has also gone to
support projects that extend beyond the traditional scope of fi ne and performing
arts funding. Australia is also undergoing similar shifts in government support.
The expectation is now in place that less government support will motivate arts
organizations to seek more support from corporations and individuals.
All of these worldwide changes make it imperative that the arts and culture
managers and leaders adapt to the new demands and expand their skills and
abilities to better serve their organizations.

In Practice: Writing a Business Plan
What steps do you need to take if you want to start up an arts organization?
The following is a sample of an arts-focused business plan. The business section
of your local bookstore will contain sources on writing a business plan.
Potential fi nancial backers or donors from the business community know
what a business plan is and have expectations about how the document
should be organized.
The area covering the fi nancial plan is typically most important and is critical
to developing the initial support to build your board of directors and to
secure startup donations.
Business Plan for an Arts Organization
Outline of a Modifi ed Business Plan
1. Title Page
2. Table of Contents
3. Executive Summary
Summarize the major points of the entire plan so that prospective board
members, donors, and community or government members will be able to
grasp what is contemplated (two pages maximum, if possible).
4. Vision/Mission/Goals Statement
■ Vision Statement.
■ Mission Statement.
■ Major goals and objectives for years 1 through 5 (3 to 5 goals
maximum).

■ How will the organization serve and enhance the quality of life in
your community?
5. Organization Overview
■ Describe how you will be organized (a small business operated in a
house, etc.).
■ Incorporation papers as per your state.
■ Bylaws – use standard bylaws customized for your organization.
■ Organizational chart.
6. Market Analysis and Marketing Plan
■ Present your research about how your organization is uniquely
qualifi ed to provide what is missing in your community.
■ Who are the “customers” for what you have to offer?
■ What is the demographic and psychographic profi le of your
potential audience?
■ Expectations you have about who and how many people will
purchase tickets, subscriptions, or memberships.
■ How will you advertise (through expenditure) or publicize (for free)
who you are and what you do? How will you develop your audience
or membership base, attract customers, or develop new audiences
for your organization?
7. Operations Plan
■ Overall description of how the organization will run on a daily
basis.
■ Job descriptions of management and staff.
■ Employee Policy Handbook.
8. Financial Plan
■ Explanation of sources of revenue and description of expenses.
How will you fi nance the startup of the organization? (For example,
donations, grants, special local economic incentive supports, small
business loans, and so forth.)
■ First-year operating. Your startup budget may have large capital
outlays for equipment, or you may need to detail donations of
equipment and space you anticipate receiving (see Chapter 9,
Operations and Budgeting).
■ 12-month cash-fl ow statement for year 2.
■ Projected operating budget for years 2, 3, and 4.
9. Appendix (optional). You may need to supplement your plan
with additional supporting materials or research that helps make
the case that your organization is needed and that your organization
is uniquely capable of solving the problems you have identifi ed as
needing solutions. Information (probably from the Internet)
should be clearly organized for the reader to look up your sources.

THE MODERN ARTS ORGANIZATION

How organizations are formed
In the twentieth century, the development of arts organizations was fueled in
part by changes in the tax laws. The requirements became more systematic
and comprehensive in the process of establishing businesses that were designated
to serve a public good. Let’s take a brief look at the steps required for
starting a nonprofi t business, and then focus on what is required to establish
an arts organization. The sidebar, In Practice: Writing a Business Plan, provides
a practical example of how to go about starting an arts organization.
Donald Farber’s book Producing Theatre: A Comprehensive and Legal Business
Guide (3rd revised edition) is also an excellent resource for how the process
works for creating a theater company.
Legal status and fi nancial statements
When a business starts up, it usually is owned and operated by one or two
people. The founder–director often operates from home – or even from a
car. However, once the operation grows to the point that a staff and offi ce
space are required, it is usually time to consider incorporating the enterprise.
Individual artists may also incorporate to gain some specifi c tax advantages.
In many parts of America the Volunteer Lawyers for the Arts helps individuals
and organizations with the incorporation process. (For more information, go
to www.vlany.org .)
Incorporation
The major reason why an individual or organization may decide legally to
incorporate is to provide protection for the people who operate the business.
Without the protection of incorporation, the owner is legally responsible for
all debts incurred and may be sued personally. A legal settlement against an
individual might mean that all personal assets would have to be sold to pay
the organization’s debts.
In the case of most arts organizations, fi ling for incorporation to become a
for-profi t or not-for-profi t business is fairly straightforward. By incorporating
the state bestows upon the organization the legal right to operate. However,
fi ling for exemption from state and local taxes requires additional paperwork.
Filing for incorporation is usually covered under the operational procedures
established by the Secretary of State. Forms and detailed instructions on fi ling
are typically available on the Web site for the Secretary of State. Typically, the
following information is required to complete the fi ling: 28

• Official name of the organization


• Purpose or purposes of the organizationScope of activities (if you are fi ling for tax exemption, it will limit what you can and cannot do with the profi ts or losses)


• Membership provisions (if any)


• Name of the person registering the incorporation and the place of business


• Names and addresses of the incorporators and the initial board of directors (if any)


• How any assets will be distributed when the corporation is dissolved

Additional legal regulations may affect nonprofi t corporations, including business
or occupation licenses and state or local charitable solicitation licenses.
Incorporation and not-for-profi t status, if accompanied by tax exemption,
empowers the organization to raise funds and accurately report the sources of
and value of the donations. Vending licenses may also be required if there is a
plan to sell items through a gift shop.

Starting a for-profi t business
When starting a small for-profi t business it is not required to have a board of
directors. For example, suppose an actor wants to start up a service company
that provides training for corporate executives on how to be more effective
public speakers. There would be no need for a board of directors to fi le with
the Secretary of State if it was a for-profi t enterprise. The legal types of forprofi
t small businesses most often used by someone trying to start a business,
such as our actor and their public speaking training service, include the sole
proprietorship, a partnership, or the limited liability corporation. The sole
proprietorship business is, as has been noted, problematic when it comes to
assuming personal legal and fi nancial liability. A similar vulnerability exists
with the partnership business. Many entrepreneurial individuals today create
their business to meet the requirements of a limited liability corporation, or
LLC. There are many distinct advantages to this corporation, not the least of
which includes protection from personal liability.
There are numerous information resources available on the Internet about
starting an LLC. For example, one such source is www.forminganllcguide.
com. This Web site covers basic terminology for the LLC and contains links to
information about starting an LLC in different states.

Creating a not-for-profi t business
Creating a not-for-profi t corporation is procedurally simple. However, underlying
this process is the assumption that starting the business will be fulfi lling
a public good. The founder(s) of the arts organization, which may have
been operating as a sole proprietorship or partnership at its inception, need
to be ready to enter into a legal arrangement that requires relinquishing

control of the organization. The legal understanding by the state and federal
government is that by granting permission to incorporate, the individuals
running the business are not going to personally profi t from the operation.
The “shareholder, ” in this case, is the public and the public should benefi t in
some way, no matter how indirectly, from the existence of this corporation.
However, that does not mean an individual (e.g., an artistic director) cannot
be paid a salary for their services from the not-for-profi t business. The state
expects that the business is incorporated by individuals who can be trusted to
provide suffi cient oversight to ensure the legal purpose of the organization is
fulfi lled and that the laws of the state are followed.
Typically, the not-for-profi t incorporation process includes naming members
of the board or specifi c offi cers of the corporation. In the beginning,
the founding board may consist of a small group that would include a board
chair, vice-chair, secretary, and treasurer. This core of people usually is made
up of members of the community that the founder may know personally and
who share his passion for the arts.
There is an expectation in most states that a set of bylaws (see sidebar, Outline
of Bylaws, on the following page) will be fi led at the time the business is incorporated.
Bylaws are the rules by which the organization will be governed and
operated. Bylaw wording templates are widely available and can be customized
to the specifi c type of organization you are creating. The sidebar on “Outline
of Bylaws ” in this chapter provide an example of the typical structure of this
document.
We will take a more in-depth look at the board of directors and board governance
in Chapters 7 and 8. The broad topic of public policy pertaining to the
subject of the purpose and place of the not-for-profi t corporation in society is
beyond the scope of this section. The subject will be covered in more depth in
Chapter 10, Economics and Financial Management.

Tax exemption
Exemption from local, state, and federal taxes does not automatically come
with not-for-profi t incorporation. The Internal Revenue Service (IRS) Code,
section 501(c)(3), exempts charitable organizations and public and private
foundations from paying taxes on earnings. However, even a not-for-profi t
organization must still pay some taxes. In addition to payroll taxes, for example,
a sales tax must be collected if the organization operates a gift shop. Some
states have taxes on admission tickets too. The IRS has many tax-exempt categories
that cover social welfare organizations such as the League of Women
Voters (501,c,4), and even cemeteries (501,c,19).
When applying for tax-exempt status, fi nancial data for the current fi scal year
and the three preceding years is requested. If the organization is just getting

started, the current year’s budget and a proposal for the next two years will be
accepted. A form that fi xes the organization’s fi scal year (e.g., July 1 to June
30) is also required.
To qualify for tax-exempt status, the organization must be operated for a
purpose allowed by tax law. The exemption status is bestowed upon organizations
that fulfi ll some of the following purposes: religious, charitable, scientifi
c (research in the public interest), literary, educational, or testing for public
safety.

The arts and education
Arts organizations typically are founded under the education category. The
organization purpose is typically stated in terms such as “Increase appreciation
and awareness of ” chamber or symphony music, Shakespeare, ballet, and
so forth. In addition, there are restrictions pertaining to making a profi t from
enterprises not directly related to the exempted purposes of the organization.
These activities will be subject to the unrelated business income tax (UBIT). For
example, if an arts organization starts acting as a travel agent and sells bookings
for cultural cruises, the IRS might rule that this is unrelated to the organization’s
stated mission, and any surplus revenue from this activity would be
subject to income taxes. There are laws also prohibiting certain lobbying and
propaganda activities.
It is important to note that a 501(c)(3) organization is not restricted from
making a profi t. As long as the profi t making relates to the stated purpose of
the organization, net earnings (profi t after deducting expenses for operations,
programming, salaries, taxes, and benefi ts) may be accrued and retained.
However, these earnings may not be distributed to members of the organization
or the board of directors. Net earnings are usually placed in endowment
funds or a restricted account and then put to use in a manner that helps fulfill
the mission of the organization.
As should be expected, the rules and regulations pertaining to tax law contain
a signifi cant amount of fi ne print. Hiring a lawyer, using legal and accounting
services donated by a board member, or contacting an organization such
as the Volunteer Lawyers for the Arts can be helpful when applying for tax-exempt
status.

Outline of Bylaws
Organizations typically develop a set of bylaws to help govern the operation.
The following is an outline of the major sections of a bylaws document.
Article I: Name — The entire name of the organization including the word
Incorporated or Inc. Do a name search with the Secretary of State to
make sure the name you have selected is not in use.

Article II: Purpose — State the purpose of the organization in one
sentence.
Article III: Members — If there are members, outline what types
there will be. For arts organizations membership is not
recommended.
Article IV: Offi cers — Titles, how are they designated or elected, term of
offi ce, duties, how vacancies are fi lled.
Article V: Meetings — When you meet (once a month, fi rst and third
Tuesday), when is there an annual meeting, provisions for special
meetings, quorum.
Article VI: Board of Directors — Number, how elected, are they also
offi cers, term of offi ce, responsibilities.
Article VII: Committees — Standing committees such as marketing/
fundraising, fi nance, personnel, bylaws, and so forth.
Article VIII: Parliamentary Authority — Indication that you will run
meetings using Robert’s Rules of Order.
Article IX: Amendment of Bylaws — How you will make changes.
Source: Joyce L. Stephens, Bylaws, 2nd edition, Frederick Publishers. Largo. Florida,
2000. Used with permission.
For more information about bylaws go to: http://nonprofi t.about.com/od/
glossary/g/bylaws.htm .

 

Once an organization has attained the legal status to operate, it is obligated
to provide reports and documentation to local, state, and federal agencies.
The organization is also required to fi le forms related to Social Security taxes
and withholding taxes, and to fi le tax forms with the IRS (IRS 990) that list
revenues, expenses, and changes in net assets (the nonprofi t organization’s
equivalency of worth is often called a fund balance or unrestricted net assets).
The details of the organization’s liabilities, assets, programmatic activities,
revenues, donations, and expenses for the previous four years must be fi led
every year. We will review these business operation details in Chapter 9,
Operations and Budgeting and Chapter 10, Economics and Financial
Management.
A fi nancial management information system (FMIS) and a person designated
to oversee this important area become vital once the organization reaches the
level of legal incorporation. The preparation of required reports — such as
a balance sheet, a statement of account activity, and a fi nancial statement of
the worth of the organization — is also required (see Chapter 10). In addition,
the organization’s fi nances must be in order to the degree that an outside
auditor can analyze the fi nancial operation. A complete audit, which can
be very costly, is often required.