Published on Thursday 17 November 2016

Our Business Development Associate offers a few useful tips for artists and creative professionals looking to set up for-profit or not-for-profit organisations

Artistic and creative professionals, especially those operating through not-for-profit organisations, are experiencing increasing pressure to become more business-minded and economically sustainable.

On the downside, many professionals from the artistic field believe that increased attention to financial performance might negatively affect the implementation of artistic activities. However, regardless of the various opinions around, the reality is that arts and cultural organisations need to balance the generation of value with their mission if they want to continue existing.

On the plus side, business models are not about complex financial formulas and overwhelming strategic theories, and financial feasibility does not necessarily have to create conflict with the fulfilment of an artistic and/or social mission. The core of most business models is quite straightforward: if an organisation has a way to create, deliver and capture value, it has a business model. And the most important characteristic of a successful business model is that it is viable and sustainable. Therefore the choice of setting up a not-for-profit versus a for-profit organisation should never depend on the cringing feeling we get when mixing the terms 'arts' and 'culture' with 'business' - but rather on a clear vision of why am I doing this?

Let us take a look at the options…

What are the main similarities and differences between for-profit and not-for-profit organisations?

Whether an organisation operates through a not-for-profit or for-profit setup is a choice made voluntarily by its founders. In either case, both setups need to provide their users with valuable services and products and at the same time be accountable to their funders, be it customers, benefactors or government.  

The biggest difference between a not-for-profit and a for-profit organisation is that the former has prioritised a mission while the latter is driven by profit maximisation. Both need to generate income in order to continue operating successfully, yet the main economical difference is what happens to the surplus generated. While not-for-profits are obliged to reinvest their profits in the mission and activities of the organisation, for-profits distribute this surplus income among owners and shareholders. 

However, the lines separating for-profit and not-for-profit organisations are becoming increasingly blurred and in both cases a business model is required in order to deliver products and services in a sustainable way - 'sustainable' meaning the vision to survive over time and continue providing value successfully.

So once I decide whether I want operate in a for-profit or not-for-profit setup, what are my options?

Not-for-profit organisations can either operate unregistered or enrol with the Commissioner Voluntary Organisations. It is however beneficial for an organisation to enrol in order to qualify for certain privileges. If a voluntary organisation does not enrol, it cannot make public collections without the permission of the Commissioner of Police, it cannot receive grants or enter into co-operation contracts with the Government of Malta and it will not be able to avail itself of the support of the Office of the Commissioner for Voluntary Organisations or be a beneficiary of the positive policies which government entities are bound to provide in favour of enrolled voluntary organisations. A non-enrolled voluntary organisation will also not be able to use the VO status in its name or on its logos and letterheads.

Enrolment details, requirements and obligations are detailed in the Malta Council for the Voluntary Sector website.

For-profit setups have a few more options to choose from.  If you are an individual still testing out an idea or concept you may want to opt for registering as a self-employed first, by registering for a VAT number and carrying out your economic activity under that VAT number. If, on the other hand, you are a group of individuals in a similar situation, a Civil Partnership should be set up by way of a public deed or in writing signed by all the parties and a notary public. A Civil Partnership will also require a VAT number in order to carry out any economic activity.

A Commercial Partnership is another option and there are two types to choose from:

A Partnership en nom collectif may be formed by two or more partners, operate under a partnership name and have its obligations guaranteed by the unlimited and joint and several liability of all the partners. It needs to have a registered office in Malta; and should be transparent for tax purposes i.e. the partners declare their share of profit in their personal tax returns with the tax chargeable according to the applicable personal tax rates.

A partnership en commandite (or limited partnership) also operates under a partnership name, must have a registered office in Malta and has its obligations guaranteed by the unlimited and joint and several liability of one or more partners. However, the capital of such a partnership may be divided into shares and the tax due is treated like that of a limited liability company and is therefore charged at a flat rate of 35%. The Malta Financial Services Authority provides a step-by-step guide on setting up a Partnership here.

The last option is a Limited Liability Company which comes with substantially more requirements and obligations, including having:

  • a different name to any other registered with the Registrar of Companies (MFSA)
  • capital requirements – a minimum Share Capital of €1,200
  • a registered office in Malta
  • at least one shareholder
  • at least one director
  • duties of Good Faith (bound with duty of care and diligence)
  • Company Secretary

In addition the company has to be responsible for General Governance of the Company and its administration, management and the general supervision of company’s affairs. Incorporation of a limited liability involves a number of costs, which although relatively small have to be incurred, including an incorporation fee when registering a new limited liability company with MFSA, the submission of further documents as required, annual returns and finally audited financial statements on annual basis where professional audit fees apply. The Malta Financial Services Authority provides a step-by-step guide to company registrations here.

Further information on how to set up your business may be found on the Business First website. Business First can also help you through the process of setting up.