Why Form a Nonprofit Corporation
A nonprofit corporation is a corporation that is formed pursuant
to a different state law than a standard for-profit corporation. The
corporation must be formed for some religious, charitable,
educational, literary or scientific purpose. While a standard
business corporation is designed to benefit and generate a profit
for its shareholders, nonprofits do not have the profit motive.
Nonprofit corporations are allowed to apply for tax-exempt status at
both the federal and state level.
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. With federal income tax rates
between 15% and 34%, this can amount to quite a tax savings.
A 501(c)(3) nonprofit is eligible to receive both public and
private grants. Individual donors can claim a federal income tax
deduction of up to 50% of income for donations made to 501(c)(3)
groups.
Nonprofits also receive the same limited liability protection as
for profit companies. This means that directors or trustees,
officers and members are typically not personally responsible for
the debts and liabilities of the nonprofit corporation.
Other benefits include:
- A corporation's life is not dependent upon its members. A
corporation possesses the feature of unlimited life. If an owner
dies or wishes to sell his/her interest, the corporation will
continue to exist and do business.
- Retirement funds, qualified retirement plans (like 401k) may
be set up more easily with a corporation.
- 503(c)(3) corporations receive lower postal rates on some bulk
mailings.
However, there are some disadvantages to forming a nonprofit
corporation. The main disadvantage of forming a nonprofit company is
the increased paperwork that is required. Articles of incorporation
must be filed with the state, bylaws prepared and meeting minutes
must be kept with your corporation?s records. Also, applications for
tax-exempt status must be filed at both the federal and state
levels.
It is important to remember that nonprofits can not be used to
generate profits for the owners, and the purpose must confirm to IRS
regulations.
- Partnerships
- Corporations
- Sole Proprietorships
- Incorporation Basics
- Naming your Business
- Writing a Business Plan
- Limited
Liability Companies
- Complying with Zoning Laws
- Getting
Licenses and Permits
- Why Form a Nonprofit Corporation?
-
Choosing Between a Corporation and an LLC
- Leases and Rental Agreements: An Overview
