Serving business owners since 2007Thinking of starting a nonprofit corporation? If you’re ready to make a positive impact in your community, understanding the basics of forming and managing a nonprofit is invaluable. In this guide, we’ll walk you through key aspects, from the structure and benefits of a nonprofit corporation to important legal considerations like tax-exempt status and liability protection. You’ll also find insights into forming a strong foundation, such as securing local support and planning for long-term success.
What is a nonprofit corporation?
A nonprofit corporation is a business structure normally used by those who are involved in activities that will benefit society in general and, as the name suggests, are not formed for the purpose of making a profit.
How is a nonprofit corporation formed?
As with for-profit corporations, nonprofit corporations are formed by filing official documents with the appropriate state.
How is a nonprofit corporation structured?
Members occupy the position held by stockholders in a for-profit corporation. A board of directors, elected by the members, meets regularly to collectively make decisions about how the corporation is run while the officers, appointed by the board of directors, handle day-to-day operations.
What are some of the advantages of a nonprofit corporation?
- Nonprofit corporation members, directors and officers are entitled to the same limited liability afforded standard corporations. Please note that limited liability does not apply in cases where the corporation has been used to perpetuate fraud or evade the law.
- Dues paid or donations made would normally be the most that its members, directors and officers could lose.
- Qualifying nonprofit corporations are tax-exempt.
- Tax exempt status makes qualifying nonprofit corporations eligible to receive government and private foundation grants.
- Raising money is easier with a tax-exempt status, allowing donors to deduct contributions to the corporation from their income taxes.
- The life of a nonprofit corporation is perpetual.
- The public may feel more comfortable contributing to a formal corporation.
- Members, directors and officers are not normally liable for legal judgments against the corporation.
What are some of the disadvantages of a nonprofit corporation?
- Official documents must be filed with the appropriate state in order to form a non profit corporation.
- State filing fees must be paid.
- Formal record-keeping and compliance with applicable rules and regulations can be cumbersome.
Are all nonprofit corporations tax-exempt?
No. Tax-exempt status is not automatic, so not every nonprofit corporation has tax-exempt status. Nonprofit status is a function of state law, but tax-exempt status is a function of federal law. However, in some states, a nonprofit corporation must apply for tax-exempt status at the state level as well. To qualify for tax-exempt status, the corporation must be organized for one of the purposes allowed in the Internal Revenue Code.
Obtaining tax-exempt status is generally required to be eligible to receive grants from the government and private foundations. A tax-exempt status also allows donors to deduct contributions from their income taxes. However, any money that remains as profit after deducting expenses from gross receipts cannot be distributed to the members, directors or officers but must be used to further the corporation’s purposes.
How many directors must a nonprofit corporation have?
The number of directors required for a nonprofit corporation varies by state. Some require a minimum of three directors, but several require only one.
What is a registered agent, and does a nonprofit corporation need one?
Yes, all corporations are required to have a registered agent. A registered agent is a person registered with the state of incorporation who is authorized to receive legal papers on behalf of the corporation. They are normally listed with the Secretary of State, and they must be located in that state and available during normal business hours.
While anyone can serve as a corporation’s registered agent, most choose to have a professional registered agent since it is extremely important that all legal documents and correspondence with the state and regulatory agencies be handled promptly and efficiently.
Do I need an attorney to form a corporation?
No. Forming a nonprofit corporation is primarily a clerical process, and although it is relatively complicated, anyone who understands and follows the required procedures can form one. We provide this formation service for substantially less than the amount charged by most attorneys.
We can and do guarantee the accurate formation of a corporation, but our service is not intended to serve as a substitute for professional advice. Since individual situations and state statutes vary, you may need to seek more detailed advice from your local professionals who are familiar with the specifics of the nonprofit corporation and its purpose.
Other factors to consider before starting a nonprofit organization
Before you begin the journey of starting your own nonprofit organization, there are several other factors to consider if you want to succeed:
- Is it necessary? There are about 8 million nonprofit agencies in the United States, so there are already plenty of nonprofits. Is your idea to develop a new one the right decision, or should you devote your time to nurturing an existing nonprofit? Make sure your nonprofit organization fulfills a need not currently being met before pouring resources, time and money into this venture.
- Local support is vital. It is imperative that you have a tremendous amount of support in order to start your nonprofit. Whether these are major donors, corporate contributions, foundations or government agencies, they will all want to see that the community is “buying into” and supporting your mission.
- Fundraising is a must. You need to have great ideas on how to fundraise for your particular organization. Donations from individuals and corporations generally make up a small amount of what it takes for a nonprofit to succeed.
- Remain business-like. You must stay organized and keep good records. Even though this is a “not-for-profit” business, maintaining a business-like presence is key. Keeping proper track of your nonprofit revenue and expenditures is necessary to provide all stakeholders and the community with transparent information on how your organization is spending contributions.
- Have a clear mission and strategic plan. Once again, this is about being organized and staying on track. Just like all successful businesses, you need a detailed plan on how you are going to achieve your mission.
- Plan for the long term. If you are looking for a quick solution, then organizing a nonprofit is something you should avoid. For all the work that it takes to start this type of business, you need to envision it being something that will be in existence for a very long time.
- Public perception is important. Every move you make and every dollar you spend can be scrutinized by the public. So, make careful choices, and do your best to represent your nonprofit in a way that benefits the community and achieves your mission.
If a nonprofit is something you are seriously considering, contact us to provide you with a nonprofit corporation kit. These kits contain many things that will help you comply with state rules and regulations regarding documentation and record keeping, including personalized certificates for your company to help make your documents official and secure.
