What You Should Know About Non Profit Organizations

Non-profit organizations are groups that serve a specific purpose, whether it is charitable, educational, religious, literary or scientific. Rather than work to generate a profit for business owners and shareholders, the main focus of a non-profit organization is to better the public and society as a whole. Non-profits may be labeled social welfare organizations, foundations, trade associations and professional associations.

Benefits of a Non-Profit Organization

Non-profit organizations do not have to pay certain local and federal taxes, depending on whether or not they meet the required criteria. For example, a number of non-profit groups do not have to pay federal income taxes on the profits they earn by engaging in public service activities. Certain non-profit groups may be exempt from paying state taxes as well, depending on specific state guidelines. Businesses that qualify as non-profit may be eligible to receive private and public grants from different organizations. They can also accept donations from private companies, corporations and individuals. As an added benefit, people and organizations that make contributions to non-profits groups may write their gifts off as tax deductions. People who operate non-profit organizations, including directors, employees and members, may be given personal liability protection. This means that in certain circumstances, the organization will not be required to pay the full monetary amount of a court-ordered judgement if the amount of the judgement exceeds the non-profit’s ability to pay. There are some situations where a non-profit may be ordered to pay the full amount of the judgement, such as if the director or other officers engaged in fraudulent behavior or performed an activity that goes against non-profit guidelines.

The Process of Forming a Non-Profit Organization

Just like any other type of business, people interested in forming a non-profit organization must fill out paperwork and submit it to the proper state agency. The first step is filing an ‘articles of incorporation’ form. This labels the group as a corporation and allows it to proceed with the process. In addition to the standard documents, however, non-profit organizers must apply for a tax-exempt status with the federal and state government. Once the paperwork has been submitted, non-profit organizers should create the rules of operation dictating how they want the business run.

Non-Profit Requirements and Limitations

In order to maintain a non-profit status, there are some requirements that these organizations must meet. First, a board of directors must be established. These directors are responsible for making crucial decisions about the structure of the organization. Some non-profits may decide to have members who also have input as to how the company functions. Members may also be able to determine who is on the board of directors, and be able to vote on important company issues. Furthermore, non-profit organizations must be careful to keep accurate and detailed records of meetings, donations, tax records and other important transactions. Non-profit organizations that do not keep proper documentation and follow all other guidelines may be at risk of losing their tax-exempt status. Non-profit organizations must be extremely careful in their business dealings as to not lose their status. For instance, non-profits are restricted from participating in or making contributions to any type of political campaign. Any profits, gifts or donations received by the organization cannot be distributed to the board of directors or members. The board of directors must be careful to pay taxes on any profits earned by engaging in activities other than those that serve the public interest. It is important to keep in mind that the tax-exempt status only applies to profits earned by performing charitable activities. Also, non-profits should not receive an excessive amount of profit from activities that are not related to their charitable purpose. If they do, they may be under scrutiny from the IRS and could be at risk of losing their non-profit status. Forming and running a non-profit organization can be extremely rewarding. By understanding the process, you can make sure that you are taking the proper steps to form your organization properly.