A Non-Profit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A business organization that serves some public purpose and therefore enjoys special treatment under the law.
Non-Profit Corporations are formed in order to conduct activities and transactions for purposes other than shareholder financial gain, while at the same time providing the same asset protections and limited liabilities of a standard corporation. A Non-Profit corporation can make a profit, but this profit must be used strictly to forward the goals rather than to provide earned income (in the form of dividends) to its shareholders. It is understood that most of the transactions and activities of a Non-Profit Corporation will not be commercial in nature.
A major difference between a profit and nonprofit business deals with the treatment of the profits. With a for profit business, the owners and shareholders generally receive the profits. With a Non-Profit, any money that's left after the organization has paid its bills is put back into the organization. Some types of Non-Profits can receive contributions that are tax deductible to the individual who contributes to the organization. Keep in mind that nonprofits are organized to provide some benefit to the public.
A Non-Profit corporation doesn't pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives. This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations' activities entitle them to a special tax-exempt status.
The IRS also mandates that there are certain activities tax-exempt organizations can't engage in if they want to keep their exempt status. For example, a section 50l(c)(3) organization cannot intervene in political campaigns.
The types of groups that typically seek nonprofit status vary widely. Here's a partial list of associations that may be eligible:
- childcare centers
- shelters for the homeless
- community health care clinics and hospitals
- churches, synagogues, mosques, and other places of worship
- performing arts groups, and
- conservation groups.
If your group isn't on this list, it doesn't mean you won't qualify for tax-exempt status. As long as your group's activity is charitable, educational, literary, religious, or scientific, you should be able to get a tax exemption.