A not for profit corporation is a type of corporation that’s sole purpose is to make money for a charitable purpose. The shareholders do not receive profits from the NFP as all profits go to the charitable purpose or profits are funneled back in to the operation of the NFP. If you have questions, please contact our office toll free at (888)-DoMyLLC (366-9552).
The common businesses that are NFPs are charities, religious and educational organizations.
NFPs have some very attractive tax benefits, such as federal tax exemption. NFPs that obtain IRS Section 501 (c) status have the added benefit of donors being able to deduct their donations as a tax write-off.
NFPs are incorporated the same way as any other corporation. See the section on Corporations. One difference is that the articles of incorporation need to be more detailed and restrictive with the goal of assisting the public clearly delineated.
In order to become tax exempt, an IRS Form 1023 form must be filled out. This can be a complicated process. It must be clear that your organization’s activities benefit the public. Once the exempt status has been obtained, it still must file an information tax return every year. Not filing it could cause the IRS to revoke the tax exempt status of your NFP.
The sooner the better. Filing of the IRS Form 1023 needs to take place within the first 27 months in order for the status to go back to the date of incorporation. Filing for it after the first 27 months will result in the tax exempt status to only go back from when the application was submitted or filed.
NFPs can pay their employee and most of them do, while some are run entirely by volunteers. Many NFPs use a combination of a staff and volunteers. Please note that salaries must be reasonable as paying anyone excessively could result in the loss of the tax exempt status. An issue with many NFPs is not paying their staff enough which causes them to not be able to hire and retain good employees.