Non-Profit Organization Overview

A Non-profit Organization (NPO) is an entity set up for specific tax-exempt purposes. A corporation that seeks to qualify as an NPO must be formed to benefit the public, a specific group of individuals, or the particular membership of the non-profit entity. A non-profit set up as a corporation benefits from the same limited liability protection as for-profit corporations enjoy.

An NPO also benefits from federal and state tax exemptions, as well as from the ability to receive grants from private foundations and the federal government. To benefit from tax-exempt status, after incorporation, the NPO must file with the IRS and relevant state tax bodies to gain such status. Typically, the IRS tax-exemption is known as 501(c)(3) status.

Examples of non-profit organizations include religious entities, political organizations, charitable organizations, membership clubs, homeowners’ associations, and credit unions. Non-profits may operate in a number of areas, such as the arts, education, public service, research, sports, or other activities.

Non-Profit Organization Frequently Asked Questions

Do non-profit organizations have shareholders?

A key difference between a non-profit and a for-profit corporation is that a non-profit does not pay dividends or issue shares. Therefore, non-profits do not have shareholders as owners. In addition, a non-profit cannot compensate its directors (except for reasonable travel expenses incurred to attend board meetings). A non-profit may have employees and may reasonably compensate its managers. A non-profit organization can have members, but many do not.

Must an NPO be a corporation?

Non-profit organizations may be formed as a not-for-profit corporation, trust, or cooperative. Sometimes they are purely informal in nature. Often, NPOs are foundations that give out grants to other non-profit organizations.

How does a non-profit organization obtain tax exemption?

After becoming recognized as a legal entity at the state level, the NPO then typically applies for tax exemption status with the Internal Revenue Service (IRS). The IRS reviews the application to ensure that the non-profit organization meets the requirements for a tax exempt organization then issues a letter granting tax exempt status. This status exempts the NPO from paying federal income taxes on any income related to its exempt activities. NPOs may also file with their relevant state tax authority for exemption from state income taxes.

Are religions non-profit entities also subject to federal and state tax filings?

Religious non-profit organizations have less stringent federal reporting requirements than other non-profit entities. Some religious organizations, such as churches, may also be exempt from state regulations concerning inspections.

Can a non-profit organization earn profits from its business?

Being an NPO does not mean that the corporation cannot sell goods or services for income. Many non-profits earn money by selling clothing, medical services, education, and other products and services.

Should I consult a lawyer in order to form a non-profit organization?

Non-profit organizations in the US are typically formed by incorporation in the state in which they expect to conduct business. Such incorporation procedures can be simple in nature and many guidebooks exist to walk one through the process. However, an attorney may be able to provide valuable guidance through the nuances of the process, as well as when applying for tax exemptions.

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Other Non-Profit Organization Information Sources

Tax Information for Charities and Other Non-Profits
Source: IRS.gov
URL: http://www.irs.gov/charities/index.html

Non-Profit Organization Information
Source: Wikipedia.com
URL: http://en.wikipedia.org/wiki/Non-profit_organization

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