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Non-Profit Corporation
source by: nolo.com
Nonprofit Basics
A quick view of a nonprofit corporation's life span, from incorporation to dissolution. Nonprofit (or not-for-profit) corporations work well for all sorts of groups, from those promoting arts and music to those active in education, health, conservation, and community services. Often the reason for obtaining nonprofit status is simple. -- it's usually a requirement for obtaining funds from government agencies and private foundations. Other important benefits include tax-exempt status and personal liability protection.
Here's an overview of what types of groups should consider incorporating, and what lies ahead for them.
Tax-Exempt Status
Many nonprofit groups seek nonprofit corporate status to gain exemptions from federal and state income taxes. The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called "501(c)(3)s."
If your group obtains tax-exempt status, not only is it free from paying taxes on all income from activities related to its nonprofit purpose , but people and organizations that donate to the nonprofit can take a tax deduction for their contributions.
Protection From Personal Liability
Forming a nonprofit corporation normally protects the directors, officers, and members of the nonprofit from personal liability for the corporation's debts and other obligations. Called limited liability, this shield ensures that anyone who obtains a judgment against the nonprofit can reach only the assets of the corporation, not the bank accounts, houses, or other property owned by the people who manage, work for, or participate in the business.
Nonprofit Leaders Worry About Personal Liability?
Believe it or not, there are still more reasons to incorporate your nonprofit group; read Five Reasons to Incorporate Your Nonprofit Association .
Who Should Consider Becoming a Nonprofit
The types of groups that typically seek nonprofit status vary widely. Here's a partial list of associations that may be eligible:
If your group isn't on this list, it doesn't mean you won't qualify for tax-exempt status. As long as your group's activity is charitable, educational, literary, religious, or scientific, and you meet the other requirements for tax-exempt status, you should be able to get a tax exemption.
Forming a Nonprofit Corporation
Forming a nonprofit corporation is very similar to forming a regular corporation: You must file articles of incorporation with the corporations division (usually part of the secretary of state's office) of your state government. But unlike regular corporations, you must also complete federal and state applications for tax exemptions.
After filing this initial paperwork, you will create corporate bylaws, which lay out the operating rules for your nonprofit. Finally, you elect the initial directors of your nonprofit and hold an organizational meeting of the board.
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