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 assets 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