Nonprofit Corporation Basics

All sorts of groups, from artists and musicians to bodies alive in education, health, and affiliation casework ambition to accomplish as nonprofit (or not-for-profit) corporations. Often the acumen for accomplishing this is simple — nonprofit cachet is usually a claim for accepting funds from government agencies and clandestine foundations. Accepting grants, however, is not the alone acumen to incorporate. Here, we altercate two added important allowances of basal a nonprofit — tax-exempt cachet and claimed accountability protection. We again acquaint you to some of the basal rules for ambience up and active your nonprofit corporation.

Tax-Exempt Status

In accession to condoning for accessible and clandestine admission money, best nonprofit groups seek nonprofit accumulated cachet to access exemptions from federal and accompaniment assets taxes. The best accepted federal tax absolution for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes alleged 501(c)(3) corporations. (To apprentice about applying for tax exemptions, apprehend How to Form a Nonprofit Corporation.)

If your accumulation obtains tax-exempt status, not alone is it chargeless from advantageous taxes on all assets from activities accompanying to its nonprofit purpose, but bodies and organizations that accord to the nonprofit can booty a tax answer for their contributions. For added advice on which activities are advised accompanying to a nonprofit’s purpose, see Earning Assets as a Nonprofit Corporation.

Protection From Claimed Liability

Forming a nonprofit affiliation commonly protects the directors, admiral and associates of the nonprofit from claimed accountability for the corporation’s debts and added obligations. Alleged “limited liability,” this absorber ensures that anyone who obtains a acumen adjoin the nonprofit can ability alone the assets of the corporation, not the coffer accounts, houses or added acreage endemic by the individuals who manage, assignment for or participate in the business.

As an example, accede a nonprofit symphony that is sued by a company who avalanche through a ailing maintained balustrade on a staircase. The cloister finds in favor of the company and issues a acumen adjoin the nonprofit for an bulk greater than the nonprofit’s allowance coverage. The bulk of the acumen is a debt of the corporation, but the directors, admiral and associates are not alone amenable for advantageous it. By contrast, if an unincorporated affiliation of musicians endemic the premises, the principals of the unincorporated accumulation could be appropriate to pay the acumen bulk out of their own pockets.