Nonprofit Corporation

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Nonprofit Corporation

A nonprofit corporation is a type of corporation that donates the revenues generated to achieve a specific goal that is of public benefit. A nonprofit corporation is formed by filing articles of incorporation. Incorporating allows the organization to be treated as a corporation.

Nonprofit corporations are allowed to create profits however those profits must be used to preserve the existence and expansion of the corporation.

In order to be recognized as a nonprofit by the IRS the corporation must file and obtain the appropriate classification with the IRS, the majority of nonprofits must file a 501c3 with the IRS in order to receive the desired tax treatment.

In the United States nonprofit corporations is formed by filing articles of incorporation in the state in which it will operate. Incorporating the nonprofit creates a legal entity and enables the organization to be treated as a corporation by law granting it the same rights and privileges afforded to for-profit corporations.

Upon being recognized as a legal entity at the state level, the next step that the nonprofit must take for the nonprofit must take to obtain tax exempt status is to apply for exemption with the IRS. . That is done typically by applying to the Internal Revenue Service. This is an altogether separate process outside of the state filing and must be completed and obtained in order for the organization to receive tax exempt status from the IRS.

What is a Nonprofit Corporation?

A Nonprofit Corporation is a Corporation whose principal purpose is public benefit and not for producing a profit. A Nonprofit Corporation may not distribute income to benefit its officers and/or directors. More importantly, a Nonprofit Corporation is not an ordinary business and should not be used as an alternative form for a business with the primary purpose of generating a profit.

What Steps Need to be Taken to Form a Nonprofit Corporation?

You must incorporate the nonprofit organization in your particular state, which consists of filing your organization's articles of incorporation with the state. It is important that your organizing documents contain the required language and specific clauses, such as a detailed exempt purpose statement, to ensure that your nonprofit will meet the requirements to qualify for Federal 501(c)(3) tax-exempt status. If you choose to incorporate your nonprofit through IncFile, you only need to complete the online order form. IncFile will prepare and file your organizing documents.

Can a Nonprofit Corporation Make a Profit?

Yes, a Nonprofit Corporation may generate a profit. Non-profit does not literally mean that a Corporation cannot make a profit. A Nonprofit Corporation can acquire more income that it spends on its exempt purpose. This profit can be utilized for operating expenses, including salaries. However, a Nonprofit Corporation may not utilize its income to profit any director or officer.

What is a Registered Agent and do I Need One?

Almost every state requires a corporation or an LLC to have a Registered Agent (sometimes called a resident agent, statutory agent, or agent for service of process). The Registered Agent address is the address that will be used by the state for any official legal and tax correspondence. The Registered Agentaddress must be a physical, in-state street address; P.O. Boxes are not acceptable. If needed, IncFile can provide you with a Registered Agent for only $99.00 per year, and any official legal and tax correspondence from the state will be forwarded to your billing/shipping address.

NOTE: If you require us to provide a registered agent, the address cannot be used as a general business/mail forwarding address. Only official legal and tax correspondence from the state will be accepted and forwarded.

Is “Nonprofit” the Same as “Tax-Exempt”?

Absolutely not. Being formed as a Nonprofit Corporation does not automatically mean that the corporation is tax-exempt for federal and, in some instances, state income tax. A “tax-exempt” Corporation is a distinctive entity that has gained an exemption from income tax liability. A Nonprofit Corporation is not eligible for exemption from income tax liability until it applies for and has been approved by the IRS for tax-exempt status.

How many Directors or Officers are Nonprofit Corporations required to have?

The majority of states require Nonprofit Corporations to have a minimum of three directors. However, some states allow for less than three directors. A small number of states require only one director.

May a Nonprofit Corporation Pay Compensation to its Officers, Directors and/or Employees?

Yes, a Nonprofit Corporation may pay a reasonable salary to its officers, directors and/or employees for services rendered to the Nonprofit Corporation and associated to its exempt purpose.

Where Should I Form my Nonprofit Corporation?

You are not required to form your nonprofit in the state where it will be physically located. However, practical matters in choosing a location to incorporate should be taken into consideration, such as the state fees and the taxation laws governing that state. If your nonprofit corporation will have only a few officers or directors and most of the activities will take place in one state, it is advisable to incorporate in that state. The disadvantages of not incorporating in your home state include the requirement of having to qualify to do business in a foreign state, being subjected to taxes in both your state of incorporation and the state in which you conduct business, and being susceptible to a law suit in your state of incorporation as well as the state in which you conduct business.

NOTE: It is important to observe these formalities and take corporate minutes of the required meetings. Failure to follow these formalities and properly document your meetings (i.e. keeping minutes) can place your corporate status in jeopardy. The necessary record keeping material, sample bylaws, and stock certificates are included in the Customized Corporate Kit provided by IncFile.

How do I Choose a Name for my Nonprofit Corporation?

You should choose a name that represents the purpose of your nonprofit corporation. If you incorporate through IncFile, we will request a first and second name choice for your nonprofit and complete a name availability search to assure that your name is available and not deceptively similar to any other legal entity. Further, you must choose a name that clearly indicates that your nonprofit is incorporated, by including the words “Corporation”, “Incorporated”, “Corp.”, or “Inc.” in your name.

What are the Differences Between Officers, Directors and Shareholders?

A corporation consists of all three: officers, directors and shareholders. Shareholders are the owners of the corporation and elect the directors. Directors guide and are involved in the fundamental decisions of the corporation on behalf of the shareholders. Officers are selected by the directors and run the day-to-day operations of the corporation. These do not need to be separate people. Any person can fill all three positions. In small businesses, one person can be the only shareholder, the only director, and the only officer.

What are Bylaws?

The bylaws of a corporation are an internal document that contains rules for holding corporate meetings and carrying out other formalities according to state corporate laws. Bylaws are not filed with the state.

Am I Required to Hold Corporate Meetings?

Once you receive the filed Articles of Incorporation, which signifies the formation of the corporation by your state, your corporation will need to hold an organizational meeting of the initial shareholders and directors. At this meeting the directors will typically adopt corporate bylaws, distribute corporation stock to initial shareholders, and appoint corporate officers. Also, in most states, directors must meet at least once a year, as directors typically must be elected (or reelected) each year. At the annual meeting the board members accept their election to the board, and transact any other necessary business. The date, time, and location of the annual meeting is typically specified in the bylaws. Written notification of the annual meetings is not usually required, but it is probably a good idea. Other regular meetings may be held as spelled out in the bylaws. Special meetings may be called, and it is typically required that directors receive written notice of the date, place, and purpose all special meetings of directors.

NOTE: It is important to observe these formalities and take corporate minutes of the required meetings. Failure to follow these formalities and properly document your meetings (i.e. keeping minutes) can place your corporate status in jeopardy. The necessary record keeping material, sample bylaws, and stock certificates are included in the Customized Corporate Kit provided by IncFile.

The following resources and links are helpful guides and links to the IRS website to help guide you through the maze of nonprofit corporations and tax-exempt corporations.

Nonprofit Links

Tax Information for Charities & Other Nonprofits

http://www.irs.gov/charities/index.html

Forms and Publications for Nonprofits

http://www.irs.gov/formspubs/index.html

501(c)(3) Links:

IRS Information about Tax-Exempt Organizations

http://www.irs.gov/charities/content/0,,id=96986,00.html

Tax Information for Charities & Other Nonprofits

http://www.irs.gov/charities/index.html

IRS Publication 557 – Tax Exempt Status for Your Organization

http://www.irs.gov/pub/irs-pdf/p557.pdf

IRS Publication 4220 – Applying for 501(c)(3) Tax Exempt Status

http://www.irs.gov/pub/irs-pdf/p4220.pdf


IRS Topic Index for Charities & Nonprofits

http://www.irs.gov/charities/topic/index.html

Forms and Publications for Nonprofits

http://www.irs.gov/formspubs/index.html

IRS Publication 526 – Charitable Contributions

http://www.irs.gov/pub/irs-pdf/p526.pdf

Federal law provides tax benefits to nonprofit organizations recognized as exempt from federal income tax under Section 501(c)(3) of the IRC. The 501(c)(3) application with the IRS is a significant step in incorporating your nonprofit. Forming a nonprofit corporation does not automatically mean that the nonprofit corporation is tax-exempt for federal and, in some instances, state income tax. A “tax-exempt” organization is a distinctive entity that has gained an exemption from income tax liability from the IRS. A nonprofit corporation is not eligible for exemption from income tax liability until it applies for and has been approved by the IRS for 501(c)(3) tax-exempt status.

The benefits of being classified as 501(c)(3) tax-exempt by the IRS include:

exemption from federal income tax and, in some instances, state income tax; eligibility to receive tax-deductible charitable contributions; eligibility for property tax exemptions; the ability to apply for grants and other public allocations; discounts on USPS bulk-mail rates; and reduced rates for radio and public service announcements. To be eligible for 501(c)(3) status, an organization must limit its purpose to an exempt purpose as described in section 501(c)(3) of the of the IRC and engage in activities that further its exempt purpose.

The most common types of 501(c)(3) organization are:


Organizations that want to be recognized as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code need to incorporate in their state, obtain an Employer Identification Number, file IRS Form 1023, The Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, all applicable Schedules and supporting documents, and IRS Form 8821, Declaration of Representative.

*NOTE:* INCFILE.COM does not prepare or file the 501(c)(3) application for federal tax exempt status. INCFILE.COM can help you file your nonprofit corporation with the state, which is the first step in the process. The 501(c)(3) information on this page and this website is intended for informational purposes only and we hope you find it helpful.

The preparation and filing of the application for the 501(c)(3) or other federal exempt tax status is a separate process from the filing of the nonprofit corporation with the state, which is usually the first step in the process. Applying for federal tax exempt status is handled through the IRS, while the forming of the nonprofit corporation is handled with the state.

1

Review the order and conduct

name availability search.

2

Prepare documents and submit

to the designated state agency.

3

Receive filed documents from

state and complete the order.

4

Deliver filed

documents to you.

See how it works: