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, just as you would do for any other type of business.
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, the corporation must file and obtain the appropriate classification with the IRS. In the majority of cases, this means filing a 501(c)(3) with the IRS in order to receive the desired tax treatment.
Reasons to choose a nonprofit:
Nonprofits can apply for both federal and state tax exempt status. Some are eligible for public and private grants, making the obtainment of operating capital easier.
Reasons to avoid a nonprofit:
Nonprofits face ongoing formalities, such as holding and properly documenting regular meetings of directors. Filing for a tax exemption status can be an expensive and extensive process to gain approval.
Who should choose a nonprofit?
Someone involved with a charitable cause or looking to make a difference and wanting to allow individuals to donate money tax free, while shielding their personal assets from liability.