{"id":4852,"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\/overview-non-profit-benefits.html"},"modified":"2025-10-29T23:38:00","modified_gmt":"2025-10-30T04:38:00","slug":"overview-non-profit-benefits","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/overview-non-profit-benefits.html","title":{"rendered":"Overview: Nonprofit Benefits"},"content":{"rendered":"\n
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Overview: Nonprofit Benefits<\/h1>\n\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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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
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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
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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

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A nonprofit corporation<\/span> is organized for a public or social benefit and not the business owner. However, nonprofits do have advantages in that they do not pay income tax<\/span> and provide liability protection<\/span> for the directors.<\/p>\n\n <\/div>\n\n\n\n

A nonprofit business is a special type of legal entity<\/span>. It\u2019s different from a for-profit<\/span> business<\/span> because it works to help a cause, not just to make money. Many people, like business owners and entrepreneurs, start a nonprofit to follow their passion for a cause. Starting a nonprofit can be like starting a small business<\/span>, but there are different rules from the Internal Revenue Service (IRS<\/span>) that you need to follow.<\/p>\n

A\u00a0nonprofit organization<\/span><\/a>\u00a0can be incorporated or unincorporated. A nonprofit corporation<\/span> is an organization with a specific not-<\/span>for-profit<\/span> mission that uses incorporation as its business structure.\u00a0<\/p>\n

On the other hand, a nonprofit<\/a> that chooses not to incorporate is simply an unincorporated organization. Nonprofit organizations<\/span> work for the public good<\/span> rather than for-profit<\/span> like private businesses. Non-profits enjoy the benefits of\u00a0tax-exempt status<\/span><\/a>\u00a0and the protection of directors, officers, and members from personal liability<\/span>.<\/p>\n

This section provides a brief overview of nonprofit<\/a> benefits.<\/p>\n

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General\u00a0Benefits of a Nonprofit<\/h2>\n

Nonprofit organizations<\/span> have several advantages that can be very rewarding. Because the mission of a nonprofit<\/a> is to work toward the public good<\/span>, the organization is eligible for benefits\u00a0that are not applicable to for-profit<\/span> organizations<\/span>.<\/p>\n

People donate to charitable nonprofits<\/span> to support the mission. When a nonprofit business makes money from fundraising<\/span>, that money usually doesn\u2019t get taxed. This helps a lot because they can put that money back into the charitable organization<\/span> to further its mission.<\/p>\n

For the leaders and board members<\/span> who govern these groups, they gain the opportunity to make positive changes in their communities. Plus, being part of a nonprofit can boost a business owner\u2019s image, showcasing their commitment to more than just profits.<\/p>\n

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

An incorporated or unincorporated nonprofit association can qualify for\u00a0tax-exempt status<\/span><\/a>\u00a0if it meets certain conditions under the Internal Revenue Code<\/span>. The federal government offers a variety of different types of tax exemptions for nonprofits. The most popular kind is called a 501(c)(3).\u00a0<\/p>\n

Under this code, the nonprofit is exempt from paying\u00a0federal <\/span>income taxes<\/span><\/a>, and contributions made to the nonprofit are tax-deductible<\/span> for the donors. To qualify, the nonprofit must engage in religious, charitable, scientific, educational, or literary endeavors for the benefit of the public.<\/p>\n

Nonprofits can also apply for tax-exempt status<\/span> under other tax codes<\/span>. The possibilities for nonprofit associations include foundations, social welfare organizations, and professional and trade associations. In many states, if a nonprofit qualifies for a federal tax exemption, it may also qualify for a state tax<\/span> exemption.<\/p>\n

Funding From Private and Public Organizations<\/h2>\n

Nonprofit businesses can get money from lots of places. They can receive grants from the government or private foundations<\/span>. Nonprofits are eligible for\u00a0public and private grants<\/a>\u00a0and can receive contributions from individuals. These grants are like gifts that don\u2019t have to be paid back, but the nonprofit has to use the money in certain ways. They can also raise money through fundraising<\/span> events.<\/p>\n

If the nonprofit is a 501(c)(3), the donation is tax deductible<\/span> for the individual or organization that made the contribution. This means people who give money to nonprofits can write it off on their own tax returns<\/span>. This encourages people to donate to nonprofit organizations<\/span>. Businesses, both small and large, might also support nonprofits.<\/p>\n

Nonprofit Organizations<\/span>: Limited Liability<\/span><\/h2>\n

Like a corporation, a nonprofit\u00a0limits personal liability<\/span><\/a>. The directors, officers, and members of a nonprofit corporation<\/span> receive protection from personal liability<\/span> for the legal obligations of the nonprofit. For example, if a legal judgment exceeds what the nonprofit can pay, the claimant will not be able to collect the remainder from the organization\u2019s directors, officers, or members.<\/p>\n

In certain circumstances, limited liability<\/span> will not provide protection when a director or officer:<\/p>\n