Why form a Non-Profit Corporation?
Chances are you’ve considered the key benefits of forming a Non-Profit Corporation (public benefit corporation) :
- Non-Profit Corporations are typically charity or service organization.
- They may be organized as a not-for-profit corporation or as a trust, a cooperative, or they exist informally. A very similar type of organization termed a supporting organization operates like a foundation, but they are more complicated to administer, hold more favorable tax status and are restricted in the public charities they support.
What happens when you file a Non-Profit Corporation? Non-Profit Corporations are formed by filing Articles of Incorporation in the state in which the business will operate. The act of incorporating creates a legal entity. The organization is then treated as a corporation by law and can enter into business dealings, form contracts, and own property like any other corporation. Once the Articles of Incorporation are filed, the Non-Profit Corporation must then undertake the proper filings with the IRS to qualify for tax-exempt status.
In summary, a Non-profit Corporation (or Not-For-Profit Corporation) has the following benefits:
- A Non-Profit Corporation provides liability protection. Separation of business and personal assets of the owners is critical. A Non-Profit Corporation provides for the separation of these assets while serving as a public purpose.
- The Non-Profit Corporation creates the legal framework for business to offer services for the general good. Forming a nonprofit corporation is much like creating a regular corporation, except that Non-profit Corporations must take the extra steps of applying for tax-exempt status with the IRS and their state tax division.
- If the business qualifies for tax exempt status, the Non-Profit Corporation will not have to pay tax on certain income. Non-Profit Corporations must still pay employment taxes, but in some states may be exempt from paying sales tax. Non-profits may also have to pay ‘unrelated business income taxes’ if the income is not substantially related to the charitable purpose.