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Nonprofit Law/Initial Investment for a Non-Profit


My business partner and I are starting an annual event that will be a non-profit organization providing scholarships and eventually developing a community center.  To start we need to raise capital, and this will take investment.  Can we set it up so that the original investors can be paid back at a profit to their investment of say 20%.  The original investors are willing to provide up to 50k, of which at the end of the three day festival event they would want to be paid back by the non-profit we create.  Is this legal?

Thank you,

Kai Thomas

I do not yet know whether your nonprofit would be granted IRS exemption as a 501(c)(3) organization (even not considering your investment plan).  However, assuming that it would be granted 501(c)(3) organization status, a 501(c)(3) organization may make arrangements, even including payments based upon profit of an annual event, if the arrangement is in the best interest of the 501(c)(3) organization and there is no excessive private benefit. I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations.  As for your specific situation, I would be willing to work on your matter further, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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