A nonprofit corporation (also called a not-for-profit corporation) is one that is formed pursuant to a different state law from a standard for-profit corporation. The most common type of nonprofit corporation, one that is formed pursuant to section 501(c)(3) of the Internal Revenue Code, must be formed for some religious, charitable, educational, literary, or scientific purpose. While a standard business corporation is designed to benefit and generate a profit for its shareholders, nonprofits do not have the profit motive.
Like for-profit corporations, nonprofits also provide limited liability. This means that directors or trustees, officers, and members generally are not personally responsible for the debts and liabilities of the nonprofit corporation.
Nonprofit corporations are allowed to apply for tax-exempt status at both the federal and state levels, allowing the corporation to be exempt from the payment of federal and state income taxes. At the federal level, IRS Form 1023 must be filed in order to qualify for 501(c)(3) tax-exempt status. Contact your state's department of taxation to receive your state's required tax-exemption forms.
A 501(c)(3) nonprofit is eligible to receive both public and private grants. As of the time of this writing, individual donors can claim a federal income tax deduction of up to 50 percent of income for donations made to 501(c)(3) groups.
As noted previously, if you are forming a 501(c)(3) nonprofit corporation, your company must be organized for some specific religious, charitable, educational, literary, or scientific purpose. However, nonprofits may also be formed for other purposes specified in different sections of the IRS code. For example, a nonprofit social or recreational club would be formed pursuant to Section 501(c)(7), and a nonprofit child-care organization would be formed pursuant to Section 501(k) of the Internal Revenue Code.
There is a great deal of information regarding nonprofit corporations that could be included here, such as more elaboration on the business purposes that would allow you to form a nonprofit, the other sections of the IRS tax code involved, and the filing of the appropriate forms with the IRS. Since most people purchasing this book will be researching how to form a for-profit corporation, we felt that it would be best to include a link to the BizFilings web site for those who want more information on the formation of a nonprofit corporation.
