• What is a nonprofit corporation?
A nonprofit corporation is formed for purposes other than generating a profit and no part of the organization's income is distributed to its directors or officers. Examples of common nonprofit corporations are churches, schools, charities, museums, hospitals, volunteer organizations, homeless shelters and civic associations. Nonprofit corporations are formed to carry out a charitable, educational, religious, literary, or scientific purpose.
• How many directors are nonprofit corporations required to have?
Some states only require one director, but the majority of states require a minimum of three directors.
• What steps need to be taken to form a nonprofit corporation?
Filing nonprofit articles of incorporation with the proper state agency is the first step. Your articles must contain the required clauses to make sure that they will qualify for tax-exempt status. You can incorporate your nonprofit association in just 10 minutes with help from The Company Corporation. Call us today, or order a package online, and we'll prepare and file the appropriate nonprofit articles of incorporation for your state of choice.
An application for tax exemption is then filed after the articles of incorporation. To apply for tax exemption at the federal level, IRS form 1023 must be completed (if assistance is required please consult with an attorney or accountant). To obtain state tax exemptions, please contact your state tax department.
Next, an annual meeting of directors and members must be held and the corporation must adopt bylaws. The compliance kit you'll receive from The Company Corporation with your order contains guidelines and samples to help you comply with these formalities.
8 Steps to Form a Nonprofit Organization:
1. Choose a business name.
2. Incorporate online or by phone with The Company Corporation.
3. Apply for your IRS tax exemption.
4. Apply for a state tax exemption.
5. Draft bylaws.
6. Appoint directors.
7. Hold a meeting of the board.
8. Obtain any necessary licenses and permits.
• What purposes are valid for a nonprofit?
Under the Federal Tax Code for tax exempt status, a nonprofit corporation must be organized and operate for some religious, charitable, educational, literary, or scientific purpose (defined below) permitted under this code. The Company Corporation will prepare your nonprofit articles of incorporation pursuant to the IRS code.
A nonprofit corporation may also be formed for other purposes pursuant to different sections of the IRS code. In order to qualify for federal tax-exempt status as a nonprofit under a different section of the code, your corporation must comply with the specific requirements of that federal tax code section. If you would like The Company Corporation to prepare your nonprofit pursuant to a different code of the IRS provision, please let us know at the time of placing your order.
Religious is defined as general types of religious organizations and more formal institutionalized churches.
Charitable is defined as providing services beneficial to the public interest.
Scientific research is defined as research for public interest; however, research incidental to commercial or industrial operations does not qualify.
Literary is defined as writing; publishing and the distribution of books which are directed toward promoting the public interest rather than engaging in commercial book writing and selling.
Educational is defined as a broad purpose that allows instruction for both self-development and the benefit of the community.
Contact an attorney or an accountant if you have further questions about your company's purpose.
• What advantages do nonprofit corporations have over unincorporated associations?
Tax exempt status. Organizations that meet the requirements of Internal Revenue Code are exempt from federal income tax as charitable organizations. Obtaining tax-exempt status can amount to significant savings.
Grant eligibility. A nonprofit is eligible to receive both public and private grants.
Personal asset protection. The responsibility of debts and liabilities of the corporation are not personally held against the officers, directors, trustees or members of the corporation.
Tax-deductible donations. Nonprofit corporations can accept donations and contributions that are tax-deductible to the donor.
Continuity. The corporation's duration does not depend upon its members. A nonprofit corporation can continue to exist and do business if an owner dies or wishes to sell their interest.
Special postage rates. Nonprofits can apply for and receive a mailing permit that gives them a special reduced nonprofit rate for mailings. This is especially helpful for organizations that will do a lot of solicitation by mail.
Property tax exemptions. In addition to an exemption from income taxes, nonprofits are usually exempt from paying property taxes on real estate and other property. Contact your county assessor's office for more information on property tax exemption, which is often called a "welfare exemption."
4 Reasons to Incorporate your Nonprofit Association:
1.Nonprofit Corporations enjoy an exemption from corporate income taxes on profits from activities related to their purpose.
2.Qualifying for a tax exemption is harder for associations than for corporations. Without tax-exempt status, your group is unlikely to qualify for many public and private grants.
3.Donors can deduct gifts to your group on their federal and state tax income returns once your organization becomes a tax-exempt nonprofit corporation.
4.Members and directors of nonprofit corporations are generally protected from personal liability, meaning that their own money, houses, and cars aren't at risk. That's not true for an unincorporated association.
What's the difference between a public charity and a private foundation?
Every exempt charitable organization is classified as either a public charity or a private foundation. They are distinguishable primarily by the level of public involvement in their activities.
Generally, organizations that are classified as public charities have an active program of fundraising and receive contributions from many sources (including the general public, governmental agencies, corporations, private foundations or other public charities). Examples include: churches, hospitals, schools, colleges and universities.
By contrast, private foundations typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources). Many offer grants to other charitable organizations and to individuals, rather than operate charitable programs.
