What Is a Nonprofit Corporation?

A nonprofit corporation is a business structure who does not operate for profit. This corporation donattes its revenue to a specific cause.

Despite the name nonprofiit, the business can still make money. But, all of this revenue must either go back into the organization (in the form of employee salaries, overhead, and other expenses), or it must be donated.

Anyone can incorporate as a nonprofit. However, only those who meet specific standards can acquire tax exempt, or 501c3, status. As such, creating incorporation papers is just the first step in the proocess of becoming a fully recognized nonprofit organization.

We will discuss the steps to becoming a nonprofit further into this page.

Is a Nonprofit Right For You?

Nonprofits deliver numerous benefits to society, and are valuable pillars of the world. However, they are not right for everyone.

Common not for profit businesses include:

Hospitals

Food Banks

Schools/Universities

Churches

Museums

Homeless Shelters

Benefits And Drawbacks of Nonprofits

Nonprofits come with many benefits – the main being tax exemption. Achieving tax exempt status as a nonprofit requires 501c3 classification. This is achieved by filing the proper paperwork.

Once a nonprofit becomes tax-exempt, any donations made are tax-deductible. Nonprofits are also eligible to receive discounts on postage and advertising.

Nonprofits also get significant legal protection. Founders and members of nonprofits are usually not liable for a nonprofit’s debts. This advantage is available without 501c3 status.

There are also drawbacks of becoming a nonprofit. Nonprofits are known for being costly and time-consuming. On top of that, you need to be dilligent with record keeping and file all the right paperwork yearly.

Different Types of Nonprofit Companies

There are four different types of non-pfoits in the United States. Each one is able to become tax exempt, though each type has slightly different goals and structure.

These types of nonprofits include:

1. Public Charities
Charities are organizations that offer free or low cost goods and services to the public using donations from the public. Donations can be obtained through private donations or fundraising events.

2. Social Advocacy Organizations

These types of organizations use donations to send out information that promote specific social agendas.

3. Foundations

Foundations are organizations that set out to better the community in some way. This could be by contributing to local charities, hosting events, or something else. They are funded by, and act on behalf of, a for-profit corporations.

4. Trade and Professional Organizations
Trade and professional organizations can be funded through membership dues.

( Political parties are also eligible for tax exempt status, but do not fall under the standard nonprofit category. )

What is 501c3 Status And How Do You Achieve It?

5013c status tax-exempt status. Only corporations incorporated as a nonprofit or trust may apply for 5013c status. These corporations will only be approved when they meet a specific set of criteria. This criteria includes:

1.

A Board of Directors to manage the nonprofit corporation. This board must consist of specific individuals, not corporations.

2.
Must have a purpose statement and operate within the standards it sets forth. Acceptable purposes include education, charity, scientific, sports competition, literary, and protection.

3.
The assets of yyour nonprofits must be designated for other charities, especially if the corporation dissolved.

The other standards associated with Incorporation involve starting a nonprofit organization, such as paying fees, registering for business locally, and applying for your EIN.

How Do You Start a Nonprofit?

1. Select a Name
Choosing a business name is the first step of starting a nonprofit. Once you pick a name and enter it online, UberBusiness checks the availability of the name for you.

2. File Paperwork

Forming a nonprofit requires filing Articles of Incorporation with the right state agency and paying the required filing fees. Both of these variables vary by state.

3. File for Tax Exemption

Nonprofits must be approved for tax exempt status. You can apply for tax exemption status by filing a 501c3 form. The application fee is usually around $500.

4. Create Bylaws & Acquire Licenses

Bylaws are created to describe a nonprofit’s purpose and lay out operating rules. Bylaws should include:

• How directors are elected and what authority they have.
• How, when and where directors’ meetings are held.
• How decisions can be reached with or without a meeting.
• Duties and responsibilities of officers and how long they serve.
• Officers, constituency rights and responsibilities, and standing committees.
• Organizational structure of the nonprofit. You may need to acquire certain license for your nonprofit. Check with your state department of consumer affairs for more information.

5. Elect Board Members

Most corporations have, at minimum, a president, treasurer, and secretary (or their equivalents). The initial board is the most important decision, as you vote with them to elect others later.Normally a corporation’s officers include, at a minimum, a president, treasurer and secretary, or their functional equivalents. The initial board is the most important decision as you will vote with them to elect others later. Some things to go over in the first board meeting:

• Elect any officers
• Form your bylaws
• Choose your headquarters
• Designate a corporate bank account
• Designate the accounting period
• Document the receipt of tax exemptions

After the meeting is completed, minutes of the meeting should be created and filed in your corporate records book. You should hold board meetings annually.