Can a club make profits and how can they be used?
November 25, 2022 | 50,00 EUR | answered by Roberta Lahn
Dear lawyer specializing in association law,
My name is Franceska Gruhlke and I am a member of a non-profit organization that works for environmental protection. Lately, we have been receiving increased income from donations and events that exceed our normal operating expenses. As a member, I have questions about whether an association is allowed to make profits and how these profits can be used.
Our association has always made sure that all income goes towards the association's work and is used for charitable purposes. However, with the increased income, we have found ourselves in a situation where we are not sure how to wisely utilize the surpluses without violating legal regulations.
I am concerned that as an association, we may encounter tax-related problems if we misuse the profits. Therefore, it would be important for us as the board and members to know what options there are for generating profits and how they can be legally used.
Can you, as a lawyer specializing in association law, help us and outline the regulations and restrictions that apply when a non-profit organization makes profits? Are there specific guidelines or regulations that we need to follow to ensure we are legally compliant?
Thank you in advance for your support and advice.
Sincerely,
Franceska Gruhlke
Dear Mrs. Gruhlke,
Thank you for your inquiry regarding profit generation and use in a non-profit organization that focuses on environmental protection. It is understandable that you are concerned about how the increased income can be used effectively without violating legal regulations.
In principle, a non-profit organization is allowed to generate profits. However, there are some important regulations and restrictions that you must adhere to in order to legally safeguard the organization. According to § 55 of the Fiscal Code (AO), a non-profit organization is allowed to generate profits as long as these profits are used exclusively and directly for charitable purposes.
Therefore, profits cannot be distributed to members, but must serve the purpose of the organization. This means that the surpluses generated by your organization must be used for environmental protection and other charitable projects. It is important that the use of profits is transparent and well-documented to avoid potential tax-related issues.
Regarding the specific use of profits, there are various possibilities. For example, you can finance additional environmental projects, invest in the further education of members, improve the organization's infrastructure, or create reserves for future projects. It is essential that the use of profits aligns with the organization's purpose and that the organization's bylaws contain appropriate provisions.
As a lawyer specializing in association law, I am here to assist you in ensuring the legal use of profits. We can clarify all questions and find a solution together that protects your organization from tax-related issues in a personal consultation.
I hope that this information has been helpful to you and I am available for any further questions.
Sincerely,
Roberta Lahn
