If you are considering applying for non-profit status, you may have heard some of your faithfully for-profit executives balk at the idea. However, being a non-profit organization comes with a host of benefits and perhaps the most famous is tax-exempt profits and funding. Of course, this distinction of a non-profit does come with stipulations.
1. Question: What organizations qualify as a non-profit corporation?
Non-profits are incorporate organizations that formed to carry out a religious, scientific, education, charitable or literary goal. Foundations, professional trade associations and social welfare agencies are some of the most common types of non-profit. Occasionally, non-profit organizations are also called 501(c)(3)s because this is the section of the Internal Revenue Code that applies to these enterprises. Additionally, non-profits can be incorporated enterprises and may be called corporations.
2. Question: What are the benefits of being a non-profit organization?
There are three main benefits of forming a non-profit organization:
- Tax exemption: All funds collected related to the non-profits mission are not taxable for non-profit organizations. Incorporated and unincorporated non-profits alike must meet certain conditions to qualify for tax-exempt status. Generally, organizations utilize the 501(c)(3) codes, but there are a variety of tax exemptions classifications organization can use. In most cases, if your organization qualifies for federal tax exemption, it will also qualify for state tax exemption.
- Public and private funding: As a non-profit organization, your enterprise is equally eligible for private and public grants as well as contributions from private citizens and companies. In fact, tax laws even encourage non-profit donations with tax-deductible contribution laws.
- Limited liability: As with corporations, officers, directors and other organization leaders have some protection against personal liability for the organization’s obligations. For instance, if a settlement exceeds the organization’s ability to pay, the directors won’t have to make up the difference with personal assets. However, limited liability does have a few limitations. 3. Question: How do you form a non-profit organization?Forming a non-profit corporation is very similar to forming a standard corporation. Here’s an overview of the process:
- Fill out an Articles of Incorporation form. Typically, you’ll need to provide the name of your organization, the address of your organization, the name of the registering agent, the address of the registering agent and the names of your organization’s officers.
- File the Articles of Incorporation form with your Secretary of State’s office or the appropriate segment of your local government. Be prepared to pay a filing fee as well.
- Apply for non-profit status to receive your federal and state tax exemptions. Remember to file for both the federal and state. Though you may qualify for both, you may have to file two separate applications.
- Draft corporate by-laws for your organization that dictate how the enterprise will operation and the details of member voting rights.
- Elect a board of directors and call a meeting. During this initial meeting, be sure to inform your board about the corporate by-laws and other professional expectations.
4. Question: Who manages non-profits?
In most non-profits, a board of directors will collaborate and make important decisions regarding the organization’s operations.
The board will hire an executive director, oversee financial actions, draw budgets, define internal policies and related management tasks. If you elect to have an executive director, that professional will oversee the organization’s daily functions and carry out the board’s requests.
Additionally, the executive director will act as a bridge between the non-profit and the board. The professional will report important information to the board and advise the various officers on possible effective actions. If you want to commit your company to a more service-oriented mindset, non-profit statue might be a great idea. Whether you choose to target a global or local community, you’ll be able to build a non-profit that will match your goals.
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