Generally, non-profit corporations are organized and structured like regular corporations. The primary difference between non-profit corporations and regular corporations is that non-profits exist to fulfill a non-monetary purpose, whereas regular corporations exist only to make money. Non-profits also stand out because they have tax-exempt status and are eligible for governmental and private funding.
Qualifying as a non-profit depends on the activities the corporation will perform. Generally, a non-profit corporation’s purpose must be one of the following:
Often, artists, community service groups, musicians, and religious-based organizations qualify as non-profit corporations.
A non-profit is not required to pay any federal or state income taxes for activities related to its stated purpose. Additionally, private parties who donate or make contributions to a non-profit corporation receive a tax deduction.
In order for a non-profit corporation to maintain its tax-exempt status, it must not engage in any of the following activities:
- Contribute money to political campaigns
- Engage in lobbying that would influence legislation to a “substantial degree”
- Distribute profits to officers, directors or members
- Make a “substantial” income from activities unrelated to its purpose
Furthermore, if the non-profit dissolves, it must distribute its money and assets to another qualified non-profit corporation.
A non-profit has directors (sometimes called “trustees”) and officers that make management and policy decisions, just like a regular corporation. Generally, the officers and directors are shielded from the liabilities (such as debt and lawsuits) of the corporation. Although non-profits do not have shareholders (owners), a non-profit may have members with voting rights.
Corporation laws vary depending on the state of incorporation. A business attorney will help you determine what you need to do according to your state law. Timelines and deadlines for non-profit incorporation are extremely strict in many states. A lawyer can assist you with following all the detailed procedural rules, contacting all the necessary state and federal officials, and adhering to the deadlines for incorporating a non-profit corporation. Also, an attorney can give you advice as to the tax laws that will apply to your non-profit, and will help you follow the procedural rules of your state should you desire to dissolve.