Types of Nonprofit Organizations:
A nonprofit organization (NPO) is dedicated to a given cause rather than generating profit. Nonprofits are often used for trusts, cooperatives, advocacy, charity, environmental, and religious groups.
Advantages of Nonprofit Organizations:
Intrinsic Rewards: Nonprofits provide a sense of intrinsic reward for employees, which is more motivating than extrinsic rewards like salary.
Starting a Nonprofit:
To create a nonprofit foundation, do a needs analysis and build a solid foundation by writing your mission statement. Then, incorporate your nonprofit to obtain tax-exempt status.
Nonprofits start as regular corporations registered through the secretary of state. To gain tax exemptions, nonprofits must then obtain special nonprofit status from the IRS.
Causes and Tax-Exempt Status:
While nonprofits can focus on any cause, common areas include education, health, human services, social programs, arts, culture, marginalized groups, and religion.
Tax-exempt and nonprofit status is for organizations with religious, scientific, charitable, educational, literary, sports, cruelty-prevention, or public safety purposes.
Board of Directors and Reinvestment:
Every nonprofit corporation must have a board of directors. Because nonprofits serve the public, finances are open to public inspection.
Nonprofits must reinvest available funding to pursue their mission. This allows tax exemption and other benefits unavailable to for-profit companies.
Pros and Cons of Nonprofit Organizations:
Pros:
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Tax-Exempt Status: A nonprofit qualifies for favored tax status; it is exempt from federal, state, and local taxes.
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Limited Liability: A non profit organization limits personal liability; the members of the nonprofit receive protection from personal liability.
Cons:
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Lack of Funds: In non profit organizations, the major source of funds is through donations.
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Low Pay: A nonprofit doesn’t reward you as much for your work as a for-profit corporation would.
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Paperwork and Administrative Costs: There is a lot of paperwork and regulations required to start and maintain a nonprofit organization. This can increase administrative costs.
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Public Scrutiny: As a nonprofit relies on public funds, it undergoes more public scrutiny than a traditional business.
In summary, a non-profit corporation furthers a social cause and provides public aid rather than seeks profits for itself.