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The corporation is the oldest form of business entity.
It has long been a successful way to do business and allows groups of individuals to pool their resources and capital to pursue a common purpose, with their risk limited solely to the amount of stock they own. Although a C Corp is a popular business structure, there are other options for forming businesses in the US.
A C Corp, also known as a corporation, is a type of business entity that is formed and regulated on a state level. The corporation is formed by filing “Articles of Incorporation” with the Secretary of State in the state of incorporation. The policies, articles, cost and regulations for forming a C Corp vary from state-to-state. Details on exactly how to form a C Corporation can be found at the end of this article.
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What Is a Nonprofit Corporation?
A nonprofit corporation is an organization whose purpose is something other than making a profit. A nonprofit donates its revenue to achieve a specific goal that benefits the public, instead of distributing it to shareholders. There are over 1.5 million nonprofit organizations registered in the US.
Being a nonprofit does not mean the organization won’t make a profit. Nonprofits can make money, but all of the money must go back into the organization by paying employee salaries, administrative expenses and other overhead costs. No one person or group owns a nonprofit. Assets from a nonprofit can be sold, but it benefits the whole organization rather than individuals.
While anyone can incorporate as a nonprofit, only those who pass the stringent standards set forth by the government can achieve tax exempt, or 501c3, status. The process of creating incorporation papers is just the first step in becoming a completely recognized nonprofit organization. We discuss the steps to becoming a nonprofit further into this page.
What Is a Nonprofit Corporation Right for?
Nonprofits are agents of change in the world today. They are established for a specific noncommercial purpose, usually religious, educational or charitable. Common not for profit businesses include...
Churches
Food Banks
Hospitals
Museums
Schools / Universities
Homeless Shelters
The Advantages & Disadvantages
of Starting a Nonprofit
Legal Protection
Another advantage is legal protection, as the founders and members are generally not held personally responsible for a nonprofit’s debts. The legal advantage is available without 501c3 status, as is the benefits that become available for employees, such as health and retirement plans. Furthermore, a nonprofit corporation that formalizes their existence improve the chances for longevity and success because the mission and vision must be clear and achievable.
Another advantage is legal protection, as the founders and members are generally not held personally responsible for a nonprofit’s debts. The legal advantage is available without 501c3 status, as is the benefits that become available for employees, such as health and retirement plans. Furthermore, a nonprofit corporation that formalizes their existence improve the chances for longevity and success because the mission and vision must be clear and achievable.
Filling All Paperwork Yearly
There are few disadvantages of becoming a nonprofit. Nonprofits cost money and time to start. Once a nonprofit is started, you must keep excellent records and make sure to file all paperwork yearly. This can be resolved by hiring the proper professionals to handle such details. Since nonprofits are there to serve the public, they are also under greater public scrutiny.
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Types of Nonprofit Companies
There are four main types of non-profits common in the United States. Each contains the ability to achieve tax exempt status despite their slightly different goals and corporate structure. They include:
Social Advocacy Organizations
This type of group is member-based and sets out to achieve specific goals without achieving a profit. The organization uses donations and member dues to send out information that promotes a particular social agenda.
Foundations
This type of organization often works to better the community, whether contributing financially to local charities, or holding events that benefit residents. They are funded by and contribute on behalf of another for-profit corporation.
Public Charities
Typically, a charity provides low cost or free services to the public using funds received from the public, known as a donation. This can be obtained through private donations or fundraising events specifically designed to solicit members or advocates of the organization.
Trade and Professional Organizations
People in the same organization can benefit from the activities of this type of non-profit. They are funded primarily through membership dues.
Political parties are also eligible for tax exempt status, but do not fall under the standard nonprofit category.
How to Achieve 501c3 Status
Corporations may file for federal tax exempt status, also known as 501c3 by the IRS, if they are incorporated as a nonprofit corporation or trust. They must meet and maintain certain stringent criteria to be considered free from paying taxes. These include:
For most states, you must name a Board of Directors to manage the high-level decisions of the non-profit corporation. These must be individuals and not corporations.
You must create a purpose statement and operate solely within the guidelines it sets forth. Purposes that are acceptable include charitable, educational, scientific, literary, sports competition and preventing cruelty to animals or children.
When incorporating, the assets of your nonprofit must be dedicated to other charities, especially should the corporation dissolve. This would be written as a dissolution statement in your Articles of Incorporation.
All other steps associated with Incorporation apply to the creation of a nonprofit organization, such as paying fees, registering for business locally and applying for your EIN.
How to Start a Nonprofit Corporation
If a C Corporation is right for you, here’s how to form one:
Pick a Name
File Paperwork
File for Tax Exemption
Create Bylaws & Acquire Licenses
Appoint Directors and Hold Your First Meetings
Other Frequently Asked Questions about LLCs
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