Frequently Asked Questions
What Is A Nonprofit Corporation?
A nonprofit corporation is an organization whose purpose is other than making profits for owners or shareholders. Its goal is to serve the public good. The biggest benefit of nonprofit status is being exempt from paying federal and state income taxes. Nonprofits may also be treated differently than for-profit organizations in other ways.
The following are examples of nonprofit corporations:
- Religious organizations
- Charitable organizations
- Political organizations
- Credit unions
- Membership clubs (i.e. Lions club, country club)
What Are The Benefits Of Incorporating As A Nonprofit?
Not only are nonprofits exempt from income taxes, but they are also exempt from sales and property taxes. In addition, nonprofits can obtain public grants, private grants, and favorable postal rates. Nonprofit status also allows the organization to receive tax deductible donations, which can reduce a donor’s taxable income..
How Do I Apply For Tax Exempt Status?
To apply for tax-exempt status, you must complete IRS Form 1023 – Application for Recognition of Exemption Under section 501(c)(3) of the Internal Revenue Code. Completing this form can be time-consuming, complicated and daunting because of the legal and tax technicalities you’ll need to understand.
How Are Nonprofit Corporations Run?
Many nonprofits have staff and though their goal isn’t specifically to maximize profits, they still have to operate as a fiscally responsible business.They earn their income from programs and services, donations, sponsorships from corporations, government grants and investments.
What Are Nonprofit Corporations Allowed To Do?
Nonprofit businesses are allowed to sell products and services. Nonprofits are also allowed to pay salaries to employees and officers. The one thing they must not do, however, is allocate corporate income to shareholders.
How Are Nonprofit Corporations Managed?
A nonprofit corporation is managed by directors. These directors may hold voluntary positions or they may be paid staff. Directors must operate under the same principles of for profit businesses; they are to act with reasonable care and in good faith, with the company’s best interests in mind. Most states require three directors. The three offices that need to be filled are those of president, secretary, and treasurer. These officers are the individuals who oversee the daily operations of the business. In some states, one person can hold all three offices. In other states this is not so.