{"id":4847,"date":"2016-04-04T10:47:45","date_gmt":"2016-04-04T15:47:45","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/non-profit-organizations.html"},"modified":"2025-11-06T14:38:00","modified_gmt":"2025-11-06T19:38:00","slug":"non-profit-organizations","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/non-profit-organizations.html","title":{"rendered":"Nonprofit Organization Law"},"content":{"rendered":"\n
\n

Nonprofit Organization Law<\/h1>\n\n
\n
\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
\n

Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

\n

Nonprofit corporations<\/span> are organizations formed for a charitable purpose and not for making money for their owners. Unlike for-profit<\/span> corporations<\/span>, nonprofits do not pay state and federal taxes<\/span> on their earnings and they can reinvest them to further their charitable mission.<\/p>\n\n <\/div>\n\n\n\n

Nonprofit corporations<\/span> play a vital role in our society, often aiming to make the world a better place. Unlike for-profit<\/span> businesses<\/span>, these groups focus on their mission statement<\/span> over profits. Entrepreneurs<\/span> who care deeply about a cause might consider starting a nonprofit. A nonprofit organization<\/span> is one that carries out a religious, scientific, or charitable purpose. The purpose could also be literary or educational.<\/p>\n

Nonprofits are tax-exempt from federal and state governments if they meet certain requirements. This is a major advantage of nonprofit organizations<\/span>. Nonprofit organizations<\/span> can form as a corporation or as an unincorporated business form. Business owners<\/span> should understand the rules about incorporation<\/span>, taxes, and more. This section will help.<\/p>\n

FindLaw’s Nonprofit Organizations<\/span> section contains information and resources for interested small <\/span>business<\/span> owners<\/span>. Here you will find tips on legal issues related to nonprofit organizations<\/span>.<\/p>\n

Form your nonprofit with confidence.\u202fOur trusted partner LegalZoom has packages starting at $99 + filing fees.<\/a><\/i><\/b><\/p>\n

Nonprofit Corporation<\/span>: Overview<\/strong><\/h2>\n

A nonprofit corporation<\/span> is similar to a traditional for-profit<\/span> corporation<\/span>. The major differences are that a nonprofit must have a charitable purpose, profits cannot go to the owners, and may not have to pay taxes<\/span> on its profits, unlike for-profit<\/span> businesses<\/span>. Nonprofit business entities<\/span> serve public or charitable purposes. These purposes might be helping kids learn to read or saving endangered animals, for example.<\/p>\n

Understand that only profits related to the nonprofit’s purpose and regular services are not subject to taxes. If the nonprofit corporation<\/span> makes profits performing services that don’t relate to its stated purpose, these profits must have taxes paid on them.<\/p>\n

Other than the tax difference, nonprofit corporations<\/span> must follow corporate formalities. A nonprofit corporation<\/span> also provides some personal <\/span>liability<\/span> protection<\/span>. These protections extend to directors, officers, and members. Still, they have to follow state law<\/span> and federal rules to get and keep these perks. They often rely on fundraising<\/span> or donations. Any money they get cannot benefit private organizations or individuals.<\/p>\n

Incorporating<\/span> Your Nonprofit Corporation<\/span><\/strong><\/h2>\n

To start a nonprofit, you first pick a business name<\/span>. Then, file <\/span>articles of <\/span>incorporation<\/span> with the secretary of state<\/span>‘s office. There’s usually a filing fee<\/span> associated with this. You’ll also need a registered agent<\/span>, someone who’s the point of contact for the corporation.<\/p>\n

Once you’re incorporated<\/span>, you create bylaws<\/span> for your nonprofit. These bylaws<\/span> explain how you’ll run things within your organization. The corporate <\/span>bylaws<\/span> lay out the rules. The board of directors<\/span> follows these rules to make big decisions on behalf of the nonprofit.<\/p>\n

After you’ve incorporated<\/span>, you can get an employer identification number<\/span> (EIN). This is a number from the Internal Revenue Service<\/span> (IRS<\/span>). This number is like a social security number for your business. You can use this number to pay state taxes<\/span> or open a business bank account<\/span>. Having a separate bank account<\/span> for business expenses is essential for organization and clarity. Every state has its own requirements, so be sure you know your state’s rules for incorporating<\/span> your nonprofit.<\/p>\n

Maintaining Tax-Exempt Status<\/span><\/strong><\/h2>\n

To maintain its tax-exempt status<\/span>, a nonprofit organization<\/span> must abide by certain rules. Tax-exempt organizations<\/span> are not allowed to receive substantial\u00a0profits from certain activities if they are outside the nonprofit’s purpose. A nonprofit is not allowed to distribute its profits to officers, directors, or members.<\/p>\n

Besides the restrictions involving profits, nonprofits have limitations on their non-business activities. For example, a nonprofit is not permitted to make a monetary contribution to any political campaign. Also, nonprofits can only take part in a limited amount of political lobbying.<\/p>\n

Advantages and Disadvantages of Nonprofit Organizations<\/span><\/strong><\/h2>\n

The main advantage of a nonprofit organization<\/span> is its tax-exempt status<\/span>. This status allows more of its resources to be available for achieving the nonprofit’s goals. Another advantage to nonprofits is that they can qualify for government funding or special grants. Nonprofits can also sometimes receive special rates for certain services.\u00a0<\/p>\n

Finally, if you want to get donations or contributions from people, nonprofit status<\/span> allows donors to deduct such contributions to 501(c)(3) nonprofits. They can make these deductions in their federal and state income <\/span>tax<\/span> returns<\/span>.<\/p>\n

There are, of course, some disadvantages to starting and running a nonprofit organization<\/span>. As mentioned above, to maintain its nonprofit and tax-exempt status<\/span>, profits cannot be divided among members. Generally, a nonprofit also has less flexibility and potential for personal gain than a for-profit<\/span> organization.\u00a0<\/p>\n

In the event that the directors choose to end the nonprofit organization<\/span>, the nonprofit must distribute any remaining assets to another nonprofit entity or a federal, state, or local government for a public benefit.<\/p>\n

Hiring an Attorney<\/strong><\/h2>\n

Starting a nonprofit organization<\/span> can be a good way to help others and receive an exemption<\/span> from federal tax<\/span>.\u00a0 If your charitable organization<\/span>\u00a0is interested in finding out more about the nonprofit\u00a0business structure<\/span>, you may want to contact an experienced business attorney<\/strong><\/a> in your area.<\/p>\n\n\n

\n \n Was this helpful?<\/span>\n \n Yes<\/span>\n \n \n \n <\/path>\n <\/g>\n \n \n <\/rect>\n <\/clipPath>\n <\/defs>\n <\/svg>\n <\/i>\n <\/button>\n \n No<\/span>\n \n \n \n \n <\/g>\n \n \n \n <\/clipPath>\n <\/defs>\n <\/svg>\n <\/i>\n <\/button>\n <\/div>\n <\/span>\n