When to form as a Non-Profit?

Updated: Sep 1, 2020

Content provided by BizFilings, a trusted partner of Upwird

A nonprofit, or non-profit corporation, is a company or organization formed for purposes other than making a profit. Like standard for-profit corporations, nonprofits provide limited liability protection. The personal assets of directors and officers typically cannot be used to satisfy the debts or liabilities of the nonprofit. To start a non-profit organization, non-profit Articles of Incorporation must be filed with the state and applicable state filing fees paid.  Advantages of a nonprofit corporation Nonprofit corporations typically offer certain benefits:

  • Limited liability protection. Directors and officers are typically not personally responsible for the nonprofit’s debts and liabilities.

  • Tax-exempt status. Nonprofits can apply for both federal and state tax-exempt status.

  • Access to grants. Some nonprofits are eligible to receive public and private grants, making it easier to get operating capital.

  • Tax-deductible donations. With 501(c)(3) nonprofits, donations made by individuals to the nonprofit corporation are tax-deductible.

Forming a tax-exempt nonprofit corporation? Tax-exempt non-profits follow state laws that are very different from those of standard corporations — but the business formation process is very similar. In order for your non-profit corporation to become tax-exempt, Form 1023 must be filed with and approved by the IRS. Some states also require a state-level tax-exempt status filing. Key Benefits Outside of providing limited liability protection, non-profit incorporation can lend additional credibility to your organization, as others may feel you are “more legitimate” because you have taken the steps to formalize your non-profit with the state.

Keep in Mind Some people think that just by creating a nonprofit corporation, the nonprofit is tax-exempt. That is not the case. Incorporating a nonprofit merely establishes it in the state of formation. To become a tax-exempt nonprofit, you must file for tax-exempt status with the IRS and be approved. Essential Considerations Since regulations differ across state and local jurisdictions, the registrations required for your business are unique depending on the location and your business operations. However, payroll tax and sales tax are common registrations for businesses in many state and local jurisdictions.

To start filing to become a nonprofit, visit BizFilings.

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