What is a Nonprofit Corporation? |
A Nonprofit Corporation is sometimes called a Not-For-Profit Corporation.
A Nonprofit Corporation is an organization that is legally registered on the state level, usually with the Secretary of State.
While the federal government must approve the tax-exempt status of a Nonprofit Corporation, a Nonprofit Corporation is not
initially registered with any US government agency.
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A Nonprofit Corporation is sometimes called a Not-For-Profit Corporation.
A Nonprofit Corporation is an organization that is legally registered on the state level, usually with the Secretary of State.
While the federal government must approve the tax-exempt status of a Nonprofit Corporation, a Nonprofit Corporation is not
initially registered with any US government agency.
A Nonprofit Corporation is an organization that works to serve some kind of public interest
rather than to provide financial benefit to any particular individuals or entities.
Many Nonprofit Corporations have much in common with For-profit Corporations.
This includes the liability protection that comes with a legally registered Corporation.
A lot of Nonprofit Corporations hire managers and employees just like a For-profit Corporation does.
The application process for a Nonprofit Corporation is very similar to that of a For-Profit Corporation.
Contrary to popular belief, Nonprofit Corporations can and do make money.
In a Nonprofit Corporation, any profits must legally go back into the Corporation.
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Do I need a lawyer to Form a Non-Profit Corporation? |
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The short answer is no. No state legally requires a lawyer to form a Nonprofit Corporation.
However, if there is anything about forming a Non-profit Corporation that you're not sure about you should seek the advice of a competent
lawyer, an accountant, or both in the state in which you want to Register your new Nonprofit Corporation BEFORE you Incorporate.
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The short answer is no. No state legally requires a lawyer to form a Nonprofit Corporation.
However, if there is anything about forming a Non-profit Corporation that you're not sure about you should seek the advice of a competent
lawyer, an accountant, or both in the state in which you want to Register your new Nonprofit Corporation BEFORE you Incorporate.
Once you have made the decision to Form a Non-profit Corporation, a lawyer can file your documents and act as a middle man for a few hundred
dollars an hour; or you can use an online service provider like All Business Documents to perform these services and save money that you
can use in your new Nonprofit Corporation.
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What are the most common types of Nonprofit Corporations? |
The most common types of Nonprofit Corporations are:
- Public-benefit Nonprofit Corporations
- Religious Corporation
- Mutual-benefit Nonprofit Corporation
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A Nonprofit Corporation is formed to provide some kind of public or community benefit.
Unlike the other types of Corporations and LLCs, a Non-profit Corporation may be eligible for certain benefits, including tax exemptions
on both the state and federal levels.
Depending on the nature of the organization, some Nonprofit Corporations may not be eligible for tax exempt status.
A Nonprofit Corporation may also be eligible for public and private grants.
A Nonprofit Corporation is formed at the state level in a similar way as that of forming a For-profit Corporation.
Nonprofits must file Articles of Incorporation in the same way that For-profit Corporations do.
A Nonprofit Corporation comes with the same liability protection as the other types of Corporations.
The main difference between a Nonprofit Corporation and a For-profit Corporation is how the profits of the Corporation are distributed,
In a For-profit Corporation profits can be distributed to shareholders.
Nonprofits are legally required to use the income to further a goal that benefits the community or some part of the public.
The most common types of Nonprofit Corporations are:
- Public-benefit Nonprofit Corporations
Organized for the general public benefit, rather than for the interest of its members or shareholders
Formed primarily for social, educational, recreational or charitable purposes
Examples are food banks and youth sports organizations
- Religious Corporation
Organized to promote religious purposes
Subject to less complicated filing and reporting requirements than other types of Corporations
May be exempt from regulations governing non-religious groups performing the same services
- Mutual-benefit Nonprofit Corporation
Serves its members in ways other than just distributing profits to them
Cannot obtain IRS tax-exempt status as a charitable organization
Pays the same taxes as For-profit Corporations
Examples are homeowners associations or a public utility companies
Each Nonprofit type is treated a little differently legally and administratively depending on the state in which they are Incorporated.
While most federal tax exempt organizations are Nonprofit Corporations, registering a Nonprofit Corporation at the state level does not
automatically qualify the Nonprofit tax exempt status at the federal level.
The IRS recognizes various types of tax exempt Nonprofit Corporations.
To receive federal tax exempt status a Nonprofit Corporation must file forms with the Internal Revenue Service.
The forms can get very complex depending on the nature of the Nonprofit.
Also, a Nonprofit Corporation cannot legally use its resources for propaganda or to further a political cause or to support a candidate for
public office.
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What is the difference between a Nonprofit Corporation and a Benefit Corporation? |
One of the major responsibilities of a For-profit Corporation is to increase shareholder value. For most Corporations the pursuit of
shareholder value is done without regard for specific benefits to the public. The only benefits that matter are those that benefit
the shareholders, who are the owners of the Corporation.
For-profit Corporations often face pressure to abandon social goals in order to increase their bottom line.
Nonprofit Corporations are formed to provide some kind of public benefit but may be restricted in their ability to raise capital
when they need to grow.
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One of the major responsibilities of a For-profit Corporation is to increase shareholder value. For most Corporations the pursuit of
shareholder value is done without regard for specific benefits to the public. The only benefits that matter are those that benefit
the shareholders, who are the owners of the Corporation.
For-profit Corporations often face pressure to abandon social goals in order to increase their bottom line.
Nonprofit Corporations are formed to provide some kind of public benefit but may be restricted in their ability to raise capital
when they need to grow.
In the last few years some states have created a new kind of For-profit Corporation which has a legal responsibility to include some
kind of public benefit in their Corporate operating requirements.
A Corporation of this kind is called a Benefit Corporation or a B Corporation.
Benefit Corporations are a hybrid between a For-profit and nonprofit Corporation.
Operating capital is easier to raise for a Benefit Corporation and the Benefit Corporation is required to provide some kind of public
benefit.
Benefit Corporations do not have any special tax breaks or benefits. Benefit Corporations are taxed just like any other Corporation
is taxed.
To qualify as a Benefit Corporation, a Corporation must have an explicit social or environmental mission, and a legally binding
fiduciary responsibility to take into account the interests of workers, the community and the environment as well as its shareholders.
A Benefit Corporation must also publish independently verified reports on its social and environmental impact alongside its financial
results.
Some states require that the report must be filed with the Secretary of State.
Some examples of the specific public benefit that a Benefit Corporation must provide, among others, include:
- Providing low-income or under served individuals or communities with beneficial products or services
- Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business
- Preserving the environment
- Improving human health
- Promoting the arts, sciences or advancement of knowledge
Currently a little over half of the states have laws that allow for the formation of a Benefit Corporation.
It is probable that in the near future all states will have legislation which allows the legal creation of Benefit Corporations.
We can help you form a Benefit Corporation in any state which currently has provisions for Benefit Corporations.
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Who owns a Non-profit Corporation? |
No one person or group of people can own a Nonprofit Corporation.
Once it is incorporated, the Nonprofit Corporation is a separate legal entity from its founders, directors, officers, and
employees.
The Nonprofit Corporation itself owns assets of the business and is entitled to receive all revenues from its operation.
Any equity in a Nonprofit Corporation belongs to the organization itself, not to the founders, board of directors or staff.
In addition, a Nonprofit Corporation cannot be sold to another individual, corporation or organization.
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Can a Nonprofit Corporation make money? |
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Contrary to popular belief a Noprofit Corporation may actually make a profit.
Many Nonprofit Corporations derive much of their funding from tax-exempt donations.
Sometimes a Nonprofit Corporation can receive more in donations that the costs to actually run the organization.
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Contrary to popular belief a Noprofit Corporation may actually make a profit.
Many Nonprofit Corporations derive much of their funding from tax-exempt donations.
Sometimes a Nonprofit Corporation can receive more in donations that the costs to actually run the organization.
A For-Profit Corporation may distribute any excess assets to its owners or shareholders.
There is no distribution of assets in a Nonprofit Corporation.
In a Nonprofit Corporation all of the money earned by or donated to the Nonprofit organization is used in pursuing the organization's
objectives as stated in its Articles of Incorporation.
Any excess capital after the close of the Nonprofit Corporation's fiscal year must be kept in the Nonprofit's accounts.
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Are all Nonprofit Corporations Tax Exempt? |
Absolutely not.
The terms Nonprofit and Tax Exempt are not synonymous.
Registering a Nonprofit Corporation with the Secretary of State does not confer or guarantee tax exempt status on
the Nonprofit Corporation.
Nonprofit status refers to legal status under state law.
Tax Exempt status refers to US federal income tax exemption under the US IRS code and may apply to certain state taxes.
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Absolutely not.
The terms Nonprofit and Tax Exempt are not synonymous.
Registering a Nonprofit Corporation with the Secretary of State does not confer or guarantee tax exempt status on a Nonprofit Corporation.
Nonprofit status refers to legal status under state law.
Tax exempt status refers to US federal income tax exemption under the US IRS code and may apply to certain state taxes.
You do not form a Tax Exempt Corporation – you form a Nonprofit Corporation and then apply to the IRS for tax exempt status.
The IRS requires that certain language is included in the Articles of Incorporation before it will grant tax exempt status to any Nonprofit
Corporaton.
After a nonprofit filing has been approved by the Secretary of State the organization must meet certain requirements
and submit an application for tax exempt status with the IRS.
Tax exempt status means that a nonprofit
- Does not pay income taxes to the federal government
- Does not pay income taxes to any state government
- Donors can take a charitable tax deduction for contributios to the nonprofit
- Can qualify for lower USPS postage rates
Most organizations filing for tax exemption must file Form 1023 with the IRS.
It can take six months or more for the IRS to approve a 1023 application for tax exempt status.
Smaller nonprofits - those that have yearly gross receipts less than $50,000 and total assets less than $250,000 - may be able to file
IRS Form 1023-EZ online.
Form 1023-EZ speeds up the process considerably. Form 1023-EZ applications are normally processed within 90 days.
All states have some kind of registration requirement for Nonprofit Corporations before they will approve exemption from state Sales and Use taxes.
Most state Sales Tax Exemptions fall into three general categories.
- Entities - including Nonprofit Corporations
- Items - tangible goods bought and sold in the course of doing business
- Uses - if an item is used in the normal course of doing business then it may be Tax Exempt
Tax Exemptions are usually administered by the state Department of Revenue.
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What is a 501(c)(3) Nonprofit Corporation? |
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501(c) refers to a section of IRS code which deals with tax exempt organizations including, but not limited to,
Nonprofit Corporations.
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501(c) refers to a section of IRS code which deals with tax exempt organizations including, but not limited to,
Nonprofit Corporations.
The most common type of tax-exempt organization falls under section 501(c)(3) of the IRS code.
This section of the IRS code allows a Nonprofit organization to be exempt from federal income tax if its activities include any of the
following purposes:
- Charitable
- Religious
- Educational
- Scientific
- Literary
- Testing for public safety
- Fostering amateur sports competition
- Preventing cruelty to children or animals
There are other types of 501(c) tax exempt organizations defined in the IRS code - 29 of them - but 501(c)(3) tax exempt organizations
are by far the most common in the US.
One advantage to qualifying to be a 501(c)(3) tax exempt organization is that most foundations will only make grants
to 501(c)(3) Nonprofits.
In addition, like federal law, most states allow 501(c)(3) organizations tax exemption for income tax purposes.
Tax exemption does not excuse an organization from maintaining proper records and filing any required annual or special-purpose tax
returns if they are required.
Failure to file required returns such as Form 990 (Return of Organization Exempt From Income Tax) may result in fines.
One prohibition for 501(c)(3) organizations is that they are prohibited from conducting political campaign activities to intervene
in elections to public office.
There are, however, provisions which may allow some 501(c)(3) organizations to legally lobby to influence legislation.
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What information does a Nonprofit need before it can apply for 501(c)(3) Tax Exempt Status? |
BEFORE a Nonprofit applies with the IRS for 501(c)(3) Tax Exempt status it will need the following:
- Articles of Incorporation approved by your Secretary of State
- Bylaws
- Federal Employer Identification Number (EIN)
- Statement of purpose that meets IRS requirements
- Statement that your Nonprofit Corporation will not engage in prohibited political or legislative activity
- A Plan of Dissolution describing the distribution of assets upon dissolution
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BEFORE you apply with the IRS for 501(c)(3) Tax Exempt status it need the following information:
- Articles of Incorporation approved by your Secretary of State
- Bylaws
- Federal Employer Identification Number (EIN)
- Statement of purpose that meets IRS requirements
- Statement that your Nonprofit Corporation will not engage in prohibited political or legislative activities
- A Plan of Dissolution describing the distribution of assets upon dissolution
There is also very specific language which needs to be included in your Articles of Incorporation which are filed with your Secretary of State
if you want to get 501(c)(3) Tax Exempt Status.
When a Nonprofit Corporation dissolves all remaining assets must be distributed to other active Nonprofits.
None of the remaining assets can be distributed to any directors, memebers or staff.
If you want to apply for 501(c)(3) Tax Exempt Status we will make sure your Articles of Incorporation include everyting that the IRS needs
before we submit them to the state.
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Is Federal Tax Exemption the same as State Tax Exemption? |
No.
Once a Nonprofit Corporation has obtained Tax Exempt Status from the IRS it needs to apply to the state, usually to the Department of Revenue,
for exemption from state taxes.
This may include exemptions from income, property, sales, and other state taxes.
For states in which there is an income tax, the procedures and obligations for obtaining state-level Tax Exempt Status vary from state to state.
For specific information on any state click on that state's link in the list below.
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What happens when a Nonprofit Corporation wants to shut down? |
When a Nonprofit Corporation wants to cease operations, any assets of the Nonprofit Corporation must be distributed to
other Nonprofits which were formed for similar purposes as the Nonprofit Corporation which is closing.
Under no circumstances can a Nonprofit Corporation distribute any remaining assets to its founders, directors or employees.
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How can I Form a Non-Profit Corporation Online? |
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If you are ready to Form a Nonprofit Corporation online now, simply click on your state in the list below to
get more information and access our order entry page
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