What is a nonprofit corporation?
A non-profit organization, also known as an NPO, is an entity that funnels any surplus funds back into the operation of the organization, rather than distributing that surplus to owners or investors. The focus of a not for profit entity is to provide services to one or more sectors of the populace, rather than to generate wealth.
There are a number of different types of operations that are classified as non-profit organizations, including charities, religious organizations, trade unions, and associations that provide support to individuals suffering with different types of diseases.
Forming a nonprofit – where do I start?
Begin with a broad charitable purpose that motivates yourself or your group of concerned citizens. Then recruit members of the community-at-large who support this broad charitable purpose in order to develop a body of individuals with diverse qualities and resources that can aid you or your group in satisfying this purpose.
You can do much of the work yourself to get incorporated and/or tax-exemption and/or tax-deductibility, but you should have some basic guidance and advice from a lawyer who understands nonprofit matters. For example, in the USA, it’s very important how you characterize your plans when filing for incorporation with your state and/or for tax-exemption and/or tax-deductibility with the IRS — otherwise, your new organization may be deemed a for-profit or you may have to pay federal taxes (among other taxes) on your income. In addition, there are various reports and filings you may have to submit. A nonprofit-knowledgeable lawyer can help you a great deal.
What should my nonprofit’s mission statement say?
Draft a mission statement that further refines your broad charitable purpose while providing your founding body of individuals with some realistic and concrete objectives toward which the body may direct its collective energies. This mission statement is the first step toward the implementation of a nonprofit organization to achieve the goals of the founding body.
What steps need to be taken to form a nonprofit corporation?
Articles of incorporation must be filed with the proper state agency. These articles of incorporation must contain specific paragraphs in connection with the nature of the nonprofit activities. A nonprofit corporation must apply for tax-exempt status with both federal (IRS Form 1023) and state authorities. A nonprofit corporation must follow certain corporate formalities, including the adoption of By-Laws.
What are the Disadvantages of a Nonprofit Corporation?
Increased paperwork that is required, including by-laws of corporation and the minutes of meetings which must be recorded and kept with other corporate records. In addition, applications for tax-exempt status must be filed at both the federal and state levels.
What are the advantages of a nonprofit corporation?
If your nonprofit is granted tax-exempt status under 501(c)(3) of the Tax Code, your corporation will be exempt from payment of federal corporate income taxes. In addition, a 501(c)(3) nonprofit corporation may receive both public and private grants. Further, individual donors can claim a federal income tax deduction of up to 50% of income for donations made to 501(c)(3) groups. Nonprofit corporations also enjoy the same limited liability protection as for profit corporations. Accordingly, directors or trustees, officers and members are typically not personally liable for the debts and obligations of the nonprofit corporation. Other benefits include perpetual or unlimited life for the corporation; retirement funds and retirement plans may be established more easily; 501(c)(3) corporations receive lower postal rates on certain bulk mailings.
The laws on how nonprofits should be managed recently changed. It is always good to for the board of directors to be up-to-date on the new laws that will help preserve your nonprofit.