Business Entity: Non-Profit Entities

Non-Profit Organizations

A non-profit organization is a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, shareholders, directors, or officers, aside from the salaries of those who operate the business. If you choose to open an entity to help people or honor someone’s name and you don’t want to generate any business profits with it, you will find this helpful. Often, successful people, after they reach their success through investments and businesses, look into creating their own charities and foundations that are registered as non-profit organizations. If you hope to open a non-profit organization, here is what you need to know.

Nonprofit entities can take the form of a corporation, a sole proprietor, a partnership, a foundation (distinguished by its endowment from a founder, which will take the form of a trusteeship), or condominium (joint ownership of common areas by owners of adjacent individual units incorporated under state condominium acts). Non-profit organizations must be designated as non-profit when created and may only pursue purposes permitted by statutes for non-profit organizations. Non-profit organizations include churches, public schools, public charities, public clinics and hospitals, political organizations, legal aid societies, volunteer services organizations, labor unions, professional associations, research institutes, museums, and some governmental agencies.

Non-profit entities are organized under each state or country laws. In the US, some states exempt non-profit organizations from state tax and state employment programs such as unemployment compensation contribution. Some states give non-profit organizations immunity from tort liability and other states limit tort liability by enacting a damage cap. State law also governs solicitation privileges and accreditations requirements such as licenses and permits. Each state defines non-profit differently. Some states make distinctions between organizations not operated for profit without charitable goals (like a sports or professional association) and charitable associations, in order to determine what legal privileges the respective organizations will be given.

For federal tax purposes, an organization is exempt from taxation if it is organized and operated exclusively for religious, charitable, scientific, public safety, literary, educational, prevention of cruelty to children or animals, and/or to develop national or international sports. Social security tax is also currently optional, although 80 percent of the organizations elect to participate.

Receiving Donations

All non-profits can solicit donations, however, there is only one type of non-profit that can offer donors the ability to write that donation off on their taxes. Being a 501(c)(3) tax exempt non-profit at the federal level is what gives donors this ability to write it off. Because of this, it is challenging to get donations without the this status. In order to apply for tax exempt status at the federal level as a 501(c)(3), you first must register as a US corporation.

Not only does this help you raise funds through donations, it also helps you qualify for grants and other financial assistance and benefits.

The Steps to Form a Non-Profit

Forming a nonprofit corporation is much like creating a regular corporation except that, non-profits have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. Here is what you need to do:

1. Choose a Business Name – Before you form your nonprofit organization, you need to decide on a name that complies with the rules of your state’s corporate filing office. Check your state’s filing office website for your state’s rules, but the following guidelines commonly apply:

–The name of your nonprofit cannot be the same as the name of another corporation on file with the corporations division.

–The name must end with a corporate designator, such as Corporation, Incorporated, Limited, or Corp., Inc., or Ltd. (This is required in only about half of the states.)

-The name cannot contain certain words prohibited by the state, such as Bank, Cooperative, Federal, National, United States, or Reserve.

1. File formal articles of incorporation and pay a small filing fee (typically under $125).
2. Apply for your federal and state tax exemptions (including 501(c)(3) if desired)
3. Create corporate bylaws which set out the operating rules for your nonprofit corporation.
4. Appoint the initial directors – (In some states you must choose your initial directors before you file your articles, because you must list their names in the document.)
5. Hold the first meeting of the board of directors.
6. Obtain licenses and permits that may be required for your organization.

Author: Sanda Kruger

Sanda is an entrepreneur, real estate investor, health coach and professional dancer. Sanda is an entrepreneur with more than 20-year experience in business development and project management in the fields of life, health and fitness coaching. She is also a real estate investor and a banker, who learned outstanding adapted business strategies, sales and marketing techniques, communication, and goal setting skills, hands-on, through life and work experiences. She is a certified fitness professional and is the creator of two original fitness programs, called BellyCore® Fitness and AquaCor®.