A nonprofit, or non-profit corporation, is a company or organization formed for purposes other than making a profit. Like standard for-profit corporations, nonprofits provide limited liability protection. The personal assets of directors and officers typically cannot be used to satisfy the debts or liabilities of the nonprofit.
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Advantages of a nonprofit corporation
Nonprofit corporations typically offer certain benefits:
- Limited liability protection. Directors and officers are typically not personally responsible for the nonprofit’s debts and liabilities.
- Tax-exempt status. Nonprofits can apply for both federal and state tax-exempt status.
- Access to grants. Some nonprofits are eligible to receive public and private grants, making it easier to get operating capital.
- Tax-deductible donations. With 501(c)(3) nonprofits, donations made by individuals to the nonprofit corporation are tax-deductible.
Forming a nonprofit corporation?
Non-profit corporations follow state laws that are very different from those of standard corporations — but the business formation process is very similar. To start a non-profit organization, non-profit Articles of Incorporation must be filed with the state and applicable state filing fees paid. In order for your non-profit corporation to become tax-exempt, Form 1023 must be filed with and approved by the IRS. Some states also require a state-level tax-exempt status filing.
Key Benefits
Outside of providing limited liability protection, non-profit incorporation can lend additional credibility to your organization, as others may feel you are “more legitimate” because you have taken the steps to formalize your non-profit with the state.
Incorporating a nonprofit establishes the nonprofit with the state of incorporation, but does not provide tax-exempt status. In order to have federal tax-exempt status, Form 1023 must be filed with and approved by the IRS.
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