A Non-Profit corporation differs from a standard corporation due to the non existence of a profit motive. In other words unlike a standard corporation it is not designed to benefit and generate a profit for its shareholders.
The section 501(c)(3) of the Internal Revenue Code stipulates that “these organizations must be formed with a religious, charitable, educational, literary, scientific testing, public safety, fostering national or international amateur sports competition, or prevention of cruelty to children or animals purpose”. If your organization has a purpose that does not fall under section 501(c) (3) of the Internal Revenue Code, you can always contact the IRS to gain advice on which section of the code applies to your organization.
As Non-Profit corporations strive broadly for the betterment of the whole world, the state sector generally provides several tax benefits to these organizations in recognition of their service. For instance Non-Profit corporations are allowed to apply for both federal and state tax-exempt status. This means if your organization is granted the approval, you can have tax exemptions from federal and/or state corporate taxes.
However do not assume just because you were granted the exemption, even the contributions made by the donors will also get exempted. This is not the case unless your Non-Profit corporation qualifies for the exemption of donor aid.
If you need more information about federal tax-exempt status please log on to www.irs.gov. However regarding the state level, each state has different requirements for applying for tax-exempt status. Therefore it is advised to contact your state's department of taxation to learn its requirements.
Another major advantage of a Non-Profit corporation is the limited liability. Similar to the standard corporations these offer the same limited liability to its members. This means that directors or trustees, officers, and members are not personally responsible for the debts and liabilities of a Non-Profit corporation.
Further if you are a corporation you have the advantage of less scrutiny from the IRS. It is identified that on a percentage basis, the IRS conducts fewer audits on corporations than individuals. Corporate returns also have fewer "red flags" than individual returns.
However this does not mean that they are empowered to do everything they need. Sometimes they are 100% liable for instance in the case of fraud, professional negligence and misconduct. Further it is important to remember that Non-Profits cannot be used to generate profits for the owners, and the purpose must confirm to IRS regulations.
Everything has its own advantages as well as disadvantages. This is common to Non- Profit corporations as well.
If you decide to incorporate your Non-Profit organization, you need to be ready to undertake all the paperwork which is associated with a corporate body. This could be tedious as it involves producing the documents such as articles of incorporation, required bylaws and minutes of meetings, which must be kept with the corporation's records.
In addition the IRS imposes annual reporting or filing requirements on most Non-Profits, even though taxes are not paid, which increases not only paper work but also the need for comprehensive accounting function along with the involvement of professional accountants. This literally means a significant increment in costs.
This article is provides a basic guideline on Non-Profit corporations. However it is highly advisable that you consult an attorney or an accountant especially regarding the structure of your specific Non-Profit corporate.
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