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 well-known are 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?
Non-profits are organizations formed to carry out a religious, scientific, education, charitable or literary goals. 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 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 exempt 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: If the organization is incorporated, officers, directors and other organization leaders have some protection against personal liability for the organizations obligations. For instance, if a settlement exceeds the organizations ability to pay, the directors wont have to make up the difference with personal assets.
3. Question: How Do You Form a Non-Profit Organization?
Forming a non-profit corporation is very similar to forming a standard corporation. Heres an overview of the process: Fill out an Articles of Incorporation form. Typically, youll 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 organizations officers. File the Articles of Incorporation form with your Secretary of States office or the appropriate segment of your state 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 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 operate 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 organizations operations. The board will hire an executive director, oversee financial actions, draw budgets, and define internal policies and related management tasks. If you elect to have an executive director, that professional will oversee the organizations daily functions and carry out the boards 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 status might be a great idea. Whether you choose to target a global or local community, youll be able to build a non-profit that will match your goals.