Erin Kee, Esq. is here with part 2 of her 4 part series on the Legal Structure of Farmers Markets. Today she talks about the non-profit structure as it applies to the business of running a farmers market.

The nonprofit structure seems like a natural corporate entity to represent a group of farmers coming together each week to sell their produce. The non-profit entity exists so that farmers and the community can become enriched by the shopping, socializing, and eating that goes on within the market. It is important to note that the enrichment points outward, towards a group of public beneficiaries, not inwards toward a group of private shareholders. This is a psychologically satisfying quality of the non-profit structure that just seems to mesh with the ethos of farmers markets.

Do not confuse the lack of profit motive, however, with a lack of managerial responsibility. Non-profit corporations are in fact corporations that need to be operated in accordance with state law and the federal tax code. In order to properly incorporate as a nonprofit, in addition to filing a certificate of incorporation the market will need a carefully drafted set of by-laws. By-laws will serve as the governing document for the organization. Examples of farmers market by-laws can be found on the Farmers Market Coalition website. These are basic templates, so market founders with experience might want to get more creative with their by-laws. For example, by-laws can either mandate or encourage a diversity of products in the market. By-laws can also establish the way farmers behave at the market by forbidding vendors to sell below cost or to give away items in order to prevent undercutting. By getting creative with these rules, the complexity of non-profit corporate structure can be used as an asset for the market instead of a statutory burden.

(Click here for a further list of ideas that can be incorporated into farmers market non-profit bylaws.)

The non-profit will also need a board of directors, who are ultimately responsible for the fiscal health of the organization. Needless to say, this takes a good deal of time and “commitment to the cause” on the part of each director.

Ordinarily, the board hires a market manager to run the day-to-day operation of the market. The manager has the responsibility to publicize and promote the market, get the permits, clear the plaza of tables at the close of the market day, or anything else the market and the farmers need in order to make the sale. This is a job like any other – the board should set out the obligations of the position, set the right performance expectation and salary, and hold the manager accountable for fulfilling its expectations.

Any market should support itself by collecting vendor fees from farmers participating in the market. These fees will be used to cover costs associated with renting the site, city permits, the market manager’s salary and any other expenses. The challenges for a non-profit farmers market primarily concern the collection of these revenues. In order to preserve the tax exempt status of the market, it would be highly advisable for market managers and boards of directors to familiarize themselves with I.R.S. Publication 557, entitled “Tax Exempt Status for Your Organization”. Some forms of revenue may jeopardize the privilege of tax exemption if the non-profit is operated carelessly.

Non-profit markets have devised some ingenious methods for determining fees associated with the market. For example, the Berkley Springs Market in West Virginia determines the fee based on the size of the vendor’s booth, the location in the market, and the drive-in accessibility.

However they are derived, the economic resources of a non-profit farmers market should flow in some way back to its farmer-beneficiaries. The key thing to remember is that with a non-profit corporate structure, this is a legal obligation as well as a moral one.

–By Erin Kee, Esq.