What is a Nonprofit Corporation?

nonprofit corporation

Nonprofit corporations are often a subject of discussion and praise but a big question, maybe even a few may arise. Like what is a nonprofit corporation, why are they important, and how are they to my advantage? A Nonprofit corporation is a special type of corporation that has been organized to meet specific  tax-exempt purposes. To qualify for Nonprofit status, your corporation must be formed to benefit: the public,  a specific group of individuals, or the membership of the Nonprofit.

Some examples of Nonprofits include: religious organizations, charitable organizations, political organizations, credit unions and membership clubs.

What Are The Advantages Of A Non-Profit Corporation?

No Taxes

As a nonprofit corporation, your organization can get state and federal exemptions from corporate income taxes plus certain other taxes. Federal corporate tax rates can be very high while state corporate taxes can take a bite as well. If you expect to earn large amounts of money from your mission-related services, exhibits, product sales, or performances, you’ll want to seek an exemption. A tax-exempt nonprofit also saves on local taxes from state and county.

Tax Exempt Public and Private Donations

Once incorporated, most charities go on to apply for nonprofit designation from the IRS. Also, as a 501(c)(3) nonprofit you can receive grants and donations. Foundations also only give grants to 501(c)(3) organizations.

Individual donors to your nonprofit corporation can claim personal federal and state income tax deductions, and bequests may be exempt from federal estate taxes.

Protection from Personal Liability

One of the most significant advantages of incorporation has to do with protecting members of your organization from personal liability.

Board members, officers, and employees of your organization receive protection from liability for corporate debts or lawsuits. Creditors can only go after your corporate assets, not the personal assets of the people who manage, work for, or volunteer for your nonprofit.

Even if you do incorporate and receive some of these protections, it is wise to purchase liability insurance to cover situations that may lie outside of incorporation law.

Organizational Perpetuity

A corporation is separate from the individuals who manage or organize it. It is this separate legal existence that provides protection from liability.  But it also means that the organization becomes immortal in a way.

The nonprofit corporation continues to exist beyond the lifetime or involvement of the people who began it or who have managed it. Also, it is more attractive to donors who want to fund a cause for the long term.

Employee Benefits

Being a corporation opens the door for employee benefits such as group life insurance, health insurance, a pension plan, etc., advantages not available to workers in unincorporated organizations.

Corporate Structure

Forming a nonprofit corporation is not simple.  But the preparation requires clarity about mission, operating rules, and procedures for decision making.

It’s essential for a nonprofit, whose board members may hold opposing ideas, to have clear-cut rules about delegation of authority and how to get things done. Furthermore, having all of these principles in the articles of incorporation and bylaws makes running the organization much easier.