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Nonprofit Corporation FAQ

Welcome to FindLaw's FAQ on nonprofit corporations. This resource provides answers to common questions about nonprofits. These organizations are also called charitable organizations or 501(c)(3) organizations. This article offers guidance for business owners, board members, and the general public. Dive in to learn more about the nonprofit world.

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What exactly is a nonprofit corporation?

nonprofit corporation is a type of organization. These organizations are dedicated to a particular social, educational, charitable, or religious purpose. The purpose could also be literary or scientific. Unlike a for-profit business, the main goal isn't to make money for owners or shareholders. Instead, they focus on their mission. Common examples include public charities, private foundations, social welfare organizations, and trade associations. 

Nonprofits can vary in size. They can be small business entities or large, well-known charitable organizations. Nonprofit corporations are sometimes referred to as "501(c)(3) corporations." This is because the most common federal tax exemption that applies to nonprofit corporations is in section 501(c)(3) of the Internal Revenue Code

Unlike conventional corporations, a nonprofit corporation does not pay state or federal income taxes. The organization does not pay taxes on profits it makes from engaging in activities related to the corporation's purpose. This tax exemption recognized by the IRS and state tax agencies supports the broader goal of serving the public.

Are there benefits that come with forming a nonprofit corporation?

Absolutely! One of the main benefits of becoming a nonprofit is gaining tax-exempt status. Tax-exempt organizations don't pay federal income taxes on the money they earn. Additionally, donations made to them are usually tax-deductible for donors. This helps boost fundraising efforts.

Nonprofits might also be eligible for partnerships and grants, and can also receive discounts only available to charitable groups. The tax laws are even set up in a way that encourages individuals and companies to donate to nonprofit corporations.

Another major benefit is that members of a nonprofit corporation enjoy limited personal liability. This means they are not responsible for any of the debts or lawsuits incurred by the nonprofit.

How do I form a nonprofit corporation?

Starting a nonprofit involves several steps. Forming a nonprofit corporation is much like forming a conventional, for-profit corporation. The first thing that you must do when forming a nonprofit corporation is to file a document called the articles of incorporation with the appropriate division of your state's government, likely a part of the secretary of state's office. When you file this document, you must also pay a filing fee. The articles of incorporation typically need to contain:

  • The name of the nonprofit corporation
  • The nonprofit corporation's address 
  • The name and address of the "registered agent" or "agent of register" for the nonprofit corporation, who will be the person that the public will contact concerning lawsuits on behalf of or against the corporation
  • The names of the officers of the nonprofit corporation

After you have filed your articles of incorporation, you need to apply for your nonprofit corporation to receive state and federal income tax exemptions (with 501(c)(3) being the main exemption for federal income tax). The application process requires that you fill out a series of rather long forms. You will also need an identification number from the Internal Revenue Service (IRS).

Once you have applied for tax-exempt status for your nonprofit corporation, you will need to draft a set of corporate bylaws. These rules set out the details for how the nonprofit corporation will be run, including member voting rights. Lastly, before you start your business, you will need to elect a board of directors and hold an initial board meeting. At this meeting, the bylaws will be ratified.

You must also register at the state level with your state government or attorney general's office. Some states may have additional information on their web pages about this.

Are there difficulties that come with running a nonprofit corporation?

Managing a nonprofit can be challenging. Running a nonprofit corporation is much the same as running a for-profit corporation. When you are running a nonprofit corporation, you must maintain an eye for details and keep accurate records. For example, meetings for the directors and members must be held, and minutes of the meetings must be recorded for the records book.

Regular responsibilities include producing an annual report, ensuring compliance with state law, and managing solicitation and fundraising campaigns. Staying updated through webinars and courses can help address these challenges.

In addition, the IRS will have requirements that must be followed. As an example, nonprofit corporations cannot make political lobbying a substantial part of the nonprofit's state goals and activities. In addition, the nonprofit must ensure that its activities do not personally benefit its members, officers, or directors.

How do I make money with a nonprofit corporation?

Nonprofits can generate revenue through various means. Fundraising is a popular method where donors give money to support the cause. They might also earn income by selling products or services. Partnerships with for-profit businesses can also be fruitful. Remember, all money earned should further the nonprofit's mission.

Hiring a Lawyer To Help With Your Nonprofit

Now that you have the basics of a nonprofit organization down, let a legal expert explain the subtle nuances of the law. If you're considering starting a nonprofit, speak to a business and commercial law attorney in your area. These experts can give you valuable legal advice.

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