Not-For-Profit Corporation

A not-for-profit or non-profit corporation is a corporation created by statute, government or judicial authority that is not intended to provide a profit to the owners or members. A corporation that is organized to provide profits to its owners or members is a for-profit corporation.  A non-profit corporation is always organized as a non-stock corporation.  A non-profit corporation is usually created with a specific purpose, such as for educational, charitable or related to other enumerated purposes.  It may be a foundation, a charity or other type of non-profit organization. Such a corporation is subject to the general laws of corporations as adapted. In some cases it may also be a public corporation. In many countries these entities are subject to exemption from various tax laws, in certain circumstances.

Types of Not-For-Profit Corporations

Generally there are three distinct types of not-for-profit corporations.  A non-profit corporation organized to operate a church or to be otherwise structured for primarily religious purposes is a nonprofit religous corporation.  A non-profit corporation organized primarily for charitable purposes and which plans to obtain federal and state tax exempt status is a nonprofit public benefit corporation.  This type of non-profit corporation usually provides charitable, scientific, literary, or educational services. A non-profit corporation for other than religious or public benefit corporation is usually categorized as a mutual benefit corporation. This membership-type of organizationmainly provides benefits to the people who belong to the group, such as social clubs, homeowners association, and service organizations like automobile clubs.

State of Incorporation

In the United States, nonprofit organizations are normally formed by incorporating in the state in which they expect to do business. The act of incorporating creates a legal entity enabling the organization to be treated as a corporation under law and to enter into business dealings, form contracts, and own property as any other individual or for-profit corporation may do.

Members

Nonprofits can have members but many do not. The nonprofit may also be a trust or association of members. The organization may be controlled by its members who elect the Board of Directors, Board of Governors or Board of Trustees. Non-profits may have a delegate structure to allow for the representation of groups or corporations as members. Alternately, it may be a non-membership organization and the board of directors may elect its own successors.

Tax Exempt Status

In many countries, non-profits may apply for tax exempt status, so that the organization itself may be exempt from income tax and other taxes, and (in some cases) so that financial donors may claim back any income tax paid on donations, or deduct from their own tax liability the amount of the donation.

In the United States, after a recognized type of legal entity has been formed at the state level, it is customary for the non-profit organization to seek tax exempt status with respect to its income tax obligations.  That is typically done by applying to the Internal Revenue Service (IRS), although statutory exemptions exist for limited types of non-profit organizations.  The IRS, after reviewing the application to ensure the organization meets the conditions to be recognized as a tax exempt organization (such as the purpose, limitations on spending, and internal safeguards for a charity), may issue an authorization letter to the non-profit granting it tax exempt status for income tax payment, filing, and deductibility purposes.  The exemption does not apply to other Federal taxes such as employment taxes. Additionally, a tax-exempt organization must pay federal tax on income that is unrelated to their exempt purpose.  Failure to maintain operations in conformity to the laws may result in an organization losing its tax exempt status.  Please note that having a non-profit corporation does not automatically make the corporation tax-exempt. 

How We Serve Our Clients

With our experience working with entrepeneurs to establish new businesses we will guide you through the process of forming a new company, assisting you in choosing the appropriate legal structure and explaining the advantages of each for your particular enterprise.  After the business is established, our attorneys will be at your disposal to answer general legal questions when they arise.  Our clients also call on us to assist them during transitional periods, raising capital, locating venture partners, merging, selling, and closing a business.