We decided that this week to take a chance to examine the charitable business structure – non-profit corporations. Most people have undoubtedly heard of a non-profit before. You might even donate to one on a regular basis. But fewer know how, exactly, to go about creating a non-profit, or what the differences between a non-profit corporation and regular one are.
What is a Non-Profit Corporation?
Non-Profit Corporations are, as their name suggests, corporations that are founded for some sort of charitable purpose and, due to that mission, do not turn a profit. There are currently 29 types of exempt organizations, but the most popular type of exemption would have to be the 501(c)(3), which applies to corporations founded for ‘charitable, religious, educational, scientific, or literary purposes, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.’ Because the corporation will be pursuing a non-profit mission, 501(c)(3) status exempts corporations that qualify from having to pay federal, and in some cases state, taxes.
How do you create one?
Just like with any other business, you need a plan to raise money – in the non-profit world, that means fundraising and finding large sponsors. Who are your target donors? What kind of budget do you expect to operate within? Your mission and the answers to those questions will make up the beginnings of your non-profit’s business plan. Incorporating a non-profit is actually very similar to incorporating a regular business. You choose a business name, create bylaws, and file the articles of incorporation with the state you are going to operate in. You then hold an organizational meeting, choose the directors, adopt the bylaws, and set a budget. Once everything is up and running, you then apply for tax exempt status from the federal, state, and local governments. The IRS requires businesses seeking non-profit status to file Form 1023 and pay a fee. Some state and local governments also require their own forms, so make sure to check with your city hall and your Secretary of State or department of corporations.
Is running a non-profit different than running a regular corporation?
A little bit. For one, the corporate mission will not be to earn as much money as possible, but rather to achieve some sort of charitable objective. The directors that run the non-profit are required to pursue the non-profit’s stated mission and guide the company based on fulfilling that mission. If the IRS finds that the corporation is not pursuing its mission, or if the business is involving itself directly in a candidate’s political campaign, the IRS could revoke 501(c)(3) status. A non-profit corporation is typically also a non-stock corporation, meaning there are no shareholders and, instead, money is raised through donations and endowments. This allows the board to maintain more control over corporate activities, and keeps operations a bit more insular.
Non-profit corporations are a great way for a community, charity, or religiously minded entrepreneur or organization to pursue a social mission and positively impact the world. And, because this particularly type of non-profit organization is also a corporation, the rules and regulations for how to run it are fairly well known – you need a board, you need to keep track meeting and minutes, and you need to be able to show you are pursuing your group’s mission. The government also helps certain types of non-profits with grants and financial assistance, so it is possible to give a non-profit a very strong start. If you are interested in founding a non-profit, make sure you check with your state’s Secretary of State so you know exactly what you need to do while creating, and running, the company. And, of course, there are plenty of professional services providers that are more than happy to help (including MyCorp!)
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