Each state permits people to form nonprofit corporations, also known as not-for-profit corporations. The main reason people form these corporations is to get tax-exempt status under the Internal Revenue Code (Section 501(c)(3)). To get tax-exempt status, the corporation must have been formed for religious, charitable, literary, scientific or educational purposes. If a corporation is tax-exempt under Section 501(c)(3), not only is it free from paying taxes on its income, but people and organizations who contribute to the nonprofit corporation can take a tax deduction for their contributions. Because many nonprofit organizations rely heavily on grants from public agencies and private foundations to fund their operations, attaining 501(c)(3) status is critical to success.

Tax-exempt status isn’t the only benefit available to a nonprofit corporation. The nonprofit label seems to create an altruistic aura around the organization and the people running it. Also, an organization that plans to do some heavy mailing may be attracted by the cheaper postal rates that nonprofits are charged.

What kinds of groups should consider becoming nonprofit corporations? Here’s a partial list:

  • child care centers
  • shelters for the homeless
  • community health care clinics
  • museums
  • hospitals
  • churches, synagogues, mosques and other places of worship
  • schools
  • performing arts groups
  • conservation groups.

Most nonprofit corporations are run by a board of directors or trustees who are actively involved in the work of the corporation. Officers and employees (some of whom may also serve on the board) usually carry out the day-to-day business of the corporation and often receive salaries.

Keep in mind that if you put assets into a nonprofit corporation, you give up any ownership or proprietary interest in those assets. They must be irrevocably dedicated to the specified nonprofit purposes. If you want to get out of the business, you can’t sell it and pocket the cash. If the nonprofit corporation does end, any remaining assets must go to another nonprofit.

See also…

Tax Law – Forum

Nonprofit Law and Fundraising