Basics of a Non-Profit Corporation

Posted: May 7, 2009 1:41 PM
Updated: May 7, 2009 1:41 PM

Real Small Business: Building Your Business

From the Editors of Real Small Business

The primary benefit of being a non-profit (or not-for-profit) corporation is that you are exempt from paying income taxes. You must qualify for tax-exempt status under the Internal Revenue Code Section 501(c)(3). Should you attain this status, not only is your corporation exempt from paying taxes, but people, corporations, or other organizations that contribute to your corporation can take a tax deduction for those contributions.
There are other benefits, too. For example, if you do a lot of mailings, you can qualify for the lower "non-profit" postal rate. Plus, there is the positive image a non-profit connotes: it tells people that you're in business not for the money but for a higher purpose.
Typically, tax-exempt status is reserved for corporations formed for religious, charitable, literary, scientific, or educational purposes. This could include: child care centers, museums, research institutes, dance or music groups, places of worship, schools, community groups, and others.
Of course, you don't make money from a non-profit company; once you put assets in, they become property of that corporation and must be dedicated to specific non-profit purposes. And you can't sell the business to get your money back. A non-profit company goes on; if it is sold, liquidated, or otherwise ends, the assets must be passed to another non-profit corporation.
There are other responsibilities and restrictions to running a non-profit business, too numerous to list here. If you are seriously considering forming a non-profit corporation, you might want to get in touch with legal and/or tax counsel that specializes in this area.
Benefits
Tax-exempt status
Contributions are tax deductible
Helps project an altruistic image for company
Disadvantages
Tax advantages limited to companies formed for religious, charitable, literary, scientific or educational purposes