By Heather Huston, Assistant Service Manager, BizFilings
Learn about the benefits of forming a nonprofit company, including limited liability protection, tax advantages, access to grants and more. Let BizFilings help you to incorporate your nonprofit today.
Understanding Nonprofit Corporations
Do you have as a goal addressing a societal problem? Or maybe forming a social club, trade organization, or cooperative? If so you may be wondering if you should operate informally or if your goals could best be accomplished by incorporating.
If you are looking to earn a profit as well as accomplish those other goals, then you would want to form a for-profit corporation or LLC. But if you are not looking for profit then you should consider the benefits of forming a non-profit company
Most nonprofits are formed to provide a benefit to the public, as opposed to clubs, cooperatives, etc. that are formed to benefit their members. They include companies formed for charitable, educational, scientific, religious and literary purposes. These charitable companies are also referred to as Sec. 501(c)(3) organizations, after the section of the Internal Revenue Code that provides them with an exemption from taxation.
Below are some of the benefits of a forming a statutory nonprofit company (usually a corporation although an LLC can be a nonprofit as well), rather than continuing to pursue a nonprofit purpose as an informal group or association.
Benefits of Forming a Nonprofit Corporation
- Separate entity status. A nonprofit corporation (or LLC) has its own separate existence. It can enter into its own contracts, sue and be sued in its own name and is responsible for its own contractual and other obligations.
- Limited liability protection. A nonprofit corporation (or LLC)P protects directors, officers and members (if it has any members) against being held personally responsible for their company’s debts and liabilities.
- Tax-exempt status
Nonprofit corporations (or LLCs) s can apply for both federal and state tax-exempt status. While a group or association that has not been formed under state law can apply for tax-exempt status it is generally easier for a corporation or other statutory business entity to get IRS approval.
- Access to grants. Some nonprofits are eligible to receive public and private grants, making it easier to get operating capital. For instance, certain grants and other public allocations are only available to 501(c)(3) organizations.
- Tax-deductible donations. With 501(c)(3) nonprofits, donations made by individuals to the nonprofit corporation are tax-deductible.
- Possible state sales and property taxes exemption. This benefit varies by state but nonprofit companies may be exempt from paying sales and/or property taxes.
- US Postal Service discounts. Tax-exempt nonprofits generally can receive discounts on bulk mail rates.
- Credibility. There may be more established credibility for a nonprofit corporation than for a person or persons informally trying to accomplish their nonprofit purpose. Donors may prefer to donate to nonprofit corporations because of this credibility.
If you have questions or would like assistance with forming a nonprofit company, contact us and we'd be happy to help.