When considering creating a microschool, founders generally begin by focusing on education vision and decisions. It is important at this stage to consider the governance structure which can best support your microschool for success.
In framing your choices, it is essential to consider the government frameworks and program requirements that govern where and how you plan to operate your microschool. Important factors guiding these choices are most often found at the state level, and can include specific requirements for participation as eligible providers in school choice programs.
Incorporating your microschool organization can be valuable, even essential, for several reasons. It can protect your personal assets in the event of a problem. Once an entity is created, it's the organization, not the individual, that is the first thing responsible. That's not a complete shield if an individual adult commits a crime or acts irresponsibly, but it provides some protection.
Bank accounts, insurance policies, commercial leases and other instruments microschools could hardly imagine operating without will in most cases require incorporation. Government compliance often requires it as well.
When considering whether to open as an IRS-recognized nonprofit organization, certain factors worth considering can include:
Corporations and LLCs are registered at the state level, with a state agency like the Secretary of State, State Corporation Commission or Department of Financial Institutions. You will need to register your corporation with your pertinent state entity in any event, and will need to show evidence of this to the IRS.
The state paperwork for filing your new entity will ask you some basic but important questions: who are the directors of your corporation? What are your by-laws? What is your mission statement? Don't let these questions intimidate you out of moving forward. There are lots of good, free model by-laws on the internet so you don't have to start from scratch. By-laws so not need to be complicated. They ensure good practices like having an annual meeting and an annual budget.
Also, be thoughtful about who you ask to serve on your board, because at the end of the day, your board has substantial control of your organization and its finances. You should plan to have at least two board members who are not related by family or business. Just remember - your board will have legal control over your activities, and your checkbook, so trust is essential.
Many microschools choose to organize as Limited Liability Company’s, or LLCs. This arrangement can work best when in certain circumstances, such as when more than one cofounder intend to share ownership stake in your microschool. Options for single-member LLCs do exist, so consider your different options, including what may or may not be permitted in your state. For single microschool owners, LLC arrangements can add a level of complexity to bookkeeping, accounting and tax reporting, so give some thought to your choices.
Simple corporations within your state’s rules, special types of organizations called S-Corps, or others are often preferable and even advantageous for tax purposes when your organization becomes profitable. You can read about S-Corps here.
Whichever path you pick, the next step is to register with the Internal Revenue Service for an EIN, or employer identification number. You'll almost certainly need an EIN even if your school doesn't actually have any employees. Think of it like a social security number for an organization -- you just need it for all the forms you'll fill out. Your EIN will likely be necessary when you register with your state tax authority as well, which is the other next step. If your school is operating as a non-profit, you may also wish to apply for 501(c)(3) charitable status or a certificate of sales tax exemption from your state. There is usually a nominal fee necessary to create the organization, but no fee for an EIN.
A question we are often asked is can the founder of a for-profit entity also create a nonprofit entity that can operate together, and in which ways? The short answer is, and getting the details right for how you do this are essential.
Microschools provide tuition help for families in many different ways. In our experience, most microschools offer some help to some families in some way, or in other words, do not require every single family to pay full tuition. If your state has a school choice program you plan to participate in, make sure you read and understand its often extensive rules and requirements for participation. If you’re not sure where to look, national organization EdChoice can be a great resource to learn more.
Scholarships can be tricky with regard to IRS reporting, with many different reporting requirements intended to guard against self-dealing. You can read more about these here.
Finally, one rule of thumb whose value will make itself evident innumerable situations, even when that value comes in terms of a better night’s sleep down the road: Know your state requirements.
States often have different requirements when it comes to organizational governance questions. Applications to incorporate may ask different questions from one state to the next, require different documents as part of your application package, and may mandate different elements be included in those documents. Usually these are common questions, and hopefully your state agency has done a good job spelling out what they need in their instructions and Frequently Asked Questions. Sometimes it isn’t easy to get a clarifying question answered as you’re working on that paperwork. So if you’re not sure, please let us know, and hopefully we will be able to help you get to the bottom of your question easily enough.