Could a non-profit be the right structure for your new business? Learn more about how non-profits work, what a non-profit corporation is, and if it’s the right fit for you.
What is a non-profit corporation?
Also referred to as a 501(c)(3), a non-profit corporation is one recognized by the IRS as tax-exempt and organized for a public or charitable purpose. A non-profit corporation must have at least one director or trustee and, upon dissolution, must either distribute its assets to the state or federal government or to another non-profit.
Most 'for profit' corporations can engage in "any lawful business activity” but non-profit corporations must state a specific purpose that benefits either the public at large, a segment of the community, or a membership-based group.
Contributions to 501(c)(3) corporations are exempt from federal or state taxation. Many wealthy individuals make substantial contributions in their estate plans for qualified non-profit corporations. It’s not uncommon for non-profits actively pursue these individuals as part of their campaign for public support.
To claim the 501(c)(3) tax-exempt status, non-profit corporations must exist and operate for religious, charitable, scientific, educational, or literary purposes. View the 501(c)(3) eligibility rules below.
- No Taxes Paid on Income
- Lower Postal Rates on Third-class Bulk Mailings
- Less Expensive Advertising Rates
- Eligibility for many state and/or federal grants
- Free Radio & TV Public Service Announcements (PSAs)
- Finances Open to Public Scrutiny
- Limited Lobbying
501(c)(3) Eligibility Rules
To claim the 501(c)(3) tax-exempt status, non-profit corporations must meet the following requirements:
- Must organize and operate for charitable, educational, religious, literary, or scientific purposes.
- Owners must not distribute gains to directors, officers, or members.
- Upon dissolution, owners must distribute remaining asses to another qualified tax-exempt entity or group.
- Cannot participate in political campaigns for or against candidates for public office.
- Cannot engage in grassroots legislative or political activities, except as permitted under federal tax rules.
Is a Non-Profit Corporation the right structure for your new business?
Don't wait to take advantage of the protections the law affords you and your business. No matter what business entity you choose, it needs to be for the right reasons. Let our business formation experts help you decide which business entity is right for you by calling 1-800-508-1729.