A nonprofit organization refers to an organization whose mission focuses on furthering a social cause or a shared goal or mission. Nonprofit organizations are formed to conduct activities and transactions for purposes other than shareholder financial gain while providing the same asset protections and limited liabilities of a standard corporation.
Purpose and Incorporation
The purpose of nonprofit organizations is generally to improve the quality of life for others at various societal levels. When your association makes a profit, you should consider incorporating as a nonprofit, which can benefit from conducting its stated activities profitably by forwarding the goals rather than providing earned income in the form of dividends to its shareholders.
Getting Started
You need to know how launching a nonprofit can create the kind of change you want to see. From initial research to your first day, to your daily operations, there are challenges to face and boxes to check as you learn how to start a nonprofit organization.
Ask yourself: Does my social cause fit into one of the IRS purposes? Is this going to consistently be the main purpose of my organization? Articles of incorporation are used for starting an limited liability company while articles of organization are used for nonprofits.
Non-Profit vs. Charity
Non-profits are focused on generating Return on Investment (ROI) through services like meals, clothes, or quality connections. Grants and donations are seen as typical ways for nonprofits to make money. However, calling yourself a non-profit is not the same as being a charity.
Pay and Tax-Exemption
You will need to pay yourself at some point so that your nonprofit provides you with a living wage. A nonprofit can own a for-profit entity, but there are rules about money invested during the start-up process. Profits from activities related to the nonprofit’s purpose are typically exempt from taxes.
The Importance of 501(c)(3) Status
To apply for federal tax-exempt status under section 501(c)(3), you need to file Form 1023 with the IRS. Nonprofits without this status can still receive state benefits, such as special grants or no sales taxes. Nonetheless, it is often beneficial to apply for the status. Informal nonprofits can also operate without formal recognition from the IRS.
After incorporation, nonprofits apply for and receive a federal Employer Identification Number. A church or organization must demonstrate it meets the requirements and qualifications of a 501(c)(3) if donors are audited. The fee for filing the application for Recognition of Exemption is $600 when done directly with the IRS.
Remember, nonprofit means the entity is organized for a nonprofit purpose. 501(c)(3) means a nonprofit organization that has been recognized by the IRS as being tax-exempt by virtue of its charitable programs.