If you have been running your nonprofit for a while, and have joined with others to do more, you may have given some thought to turning your organization into a corporation. While there are some basic tasks and paperwork involved with incorporating a nonprofit, the benefits may outweigh the costs. There are five important reasons that you may benefit from turning an organization into a corporation.
Limited Personal Liability in the Political Arena
As a rule, nonprofit organizations are required to limit their political activity. This can be difficult when your ultimate goal is to bring about change in laws that help the people you are working with. Unfortunately, you may be faced with lawsuits over time from those who disagree with you. If this happens, and your nonprofit is sued, your personal assets may be at stake.
If your nonprofit is incorporated, however, then personal assets are protected and only the corporation’s assets are used to fight the battle or pay out any legal fees. Incorporating a nonprofit is an important way to keep your foot in the games you feel are important without risking your personal wealth and lifestyle.
Organization Profits and How to Use Them
While you may have started your organization out of the goodness of your heart and paid the costs up front, there will come a time when your organization can turn a profit, and you can’t simply pocket it without paying the correct taxes. If you want to take a profit that allows you to put more money into your organization or pay your wages, then incorporating is a good idea. It also gives you the ability to file with the Internal Revenue Service as a nonprofit and apply to receive tax exemption status.
Turning a profit with a nonprofit organization is not a bad thing – it simply gives you the means to do more with your vision, if that profit is handled correctly.
Access to Private or Public Grant Money
Incorporating your nonprofit makes it easier to get a tax exempt status, which makes public and private grant money available to you. While you do have a chance of being tax exempt as an organization, it’s a very complicated process, and the IRS is much more likely to approve your status if you are a registered corporation. Tax exempt means you are not required to pay taxes that other businesses pay, which gives you more money to pump back into your cause.
Donor Charitable Deductions
If your corporation has tax exempt status, which you are more likely to receive as a corporation, then any donations given to your nonprofit can be deducted from donors’ tax returns. This makes it more likely that individuals and businesses will donate to your cause, allowing you to raise more money for the things you are passionate about. It’s a win-win situation because the donor saves money on taxes when he or she gives money to your organization.
Protect Your Personal Assets
As a nonprofit, you likely have a cause you are passionate about – but this also means that others may be passionate about the opposite side. If any other organization or individual feels you have overstepped your bounds, you may end up embroiled in a lawsuit. If this happens, and your organization is incorporated, then all of your personal assets are protected. If there is no corporation, then the other side may come after your assets, ruining your organization and your personal life in the process.
Incorporate Your Nonprofit for Protection
Incorporating your nonprofit gives you more freedom to grow and bring about the change you are passionate about. While the process may be lengthy and time consuming in the beginning, in the long run, the benefits allow you to make a difference in the world.
Legal Disclaimer
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.