1. Why Form a Non-profit?
Often the reason for forming a nonprofit is simple: Being organized as a tax-exempt corporation is a common requirement for obtaining grant and funds from government agencies and private foundations. There are other benefit as well available to tax exempt nonprofit, such as the low-cost NFP mailing, advertising, and purchasing rates, and other private and governmental discounts and preferences.
- a) Lawsuits against a Non-profit can only reach the corporate assets, not the bank accounts, houses, or other property owned by the individuals who manage, work for, or participate as members of the corporation.
- b) You must define the NFP of your group; describe your fundraising program, project expecte3d sources of support, determine whether you will adopt a formal membership structure, specify the qualifications and procedures for selecting your BOD, officers, and members and attend to a number of other matters.
2. Can Non-profit make profits?
Absolutely. Setting up a nonprofit corporation does not mean that you cannot make a profit. Under the fed tax law and state corporate statutes, as long as our corporation is organized and operated for a recognized non-profit purpose, it can take in more money than it expends in conducting its activities.
A non-profit may use its tax-free profits for its operating expenses (including salaries for officers, directors, and employees) or for the benefit of its organization.
What it cannot do: under IRC Section 501(c)(3) is distribute any of the profits for the benefit of its officers, directors, or employees (as dividends, for example).
3. What Nonprofits cannot do?
- a) Non-profit may not distribute profits or other private benefits to directors, officers, members, or staff (although reasonable salaries and standard employment benefits are allowed).
- b) Income from sources unrelated to the tax-exempt purposes of the group must not be substantial.
- c) The assets of the organization must be dedicated to its tax-exempt purpose. This means that if and when the group dissolves, any remaining assets must be distributed to another tax-exempt 501(c)(3) organization.
4. Who can form a non-profit organization?
Most nonprofit can be established under the state law where it operates for one of three broad purposes: a) for the benefit of the public (a public benefit corp.); b) for religious purpose (religious corp.); c) for the mutual benefit of the members of the non-profit (a mutual benefit corp.)
5. Major Benefits of a Non-profit Corporation
A) Tax exemption – this includes the exemptions at the federal, state and often local levels on the corporation income taxes. B) Receiving Public and Private Donations – if you plan to ask people to give you significant amounts of money in furtherance of your nonprofit purpose, you need to demonstrate to your donors that you have 501c3 tax-exempt status.
6. Major Disadvantages of a Non-profit Corporation
A) Official paperwork. Setting up a non-profit corporation involves reporting with multiple agencies from local to state to federal governments so it is not for the faint heart.
B) Incorporation costs and fees. There is no discount in the formation of a non-profit, however. The tax benefit comes after your establishment of a non-profit corporation.
C) Time and Energy Needed to run the nonprofit. This could often become a full-time employment by itself. So be aware of the burden. Additionally, there are restrictions for non-profits in exchange and in consideration of receiving tax breaks from the government:
D) Restrictions on Paying Directors and Officers.
E) Restrictions upon Dissolution.
F)Restrictions on your Political Activities.
G) Oversight by the Attorney General of your State.
7. Why Nonprofit Isn’t for Everyone
Forming a non-profit is a ton of work, not to mention the idea and effort to kickstart your passion. The work involved is an ongoing proposition that require dedication over a long period of time. Many groups who ‘do good works’ can operate just fine as unincorporated associations. If your group does not generate a taxable profit and doesn’t need to attract tax deductible contributions, apply for public or private grant monies, or provide its officers, directors, personnel, or members with protection against being sued, it is perfectly fine not to form a tax-exempt nonprofit corporation.