Nonprofit Corporations are formed for purposes other than making a profit, usually by groups involved in activities that typically benefit society in general.
Members occupy the position held by stockholders in a for-profit corporation and, along with the directors and officers, are entitled to the same limited liability afforded standard corporations.
Dues paid or donations made would normally be the most that members, directors and officers could lose. As with other corporations, limited liability does not apply if the corporate form has been used to perpetuate a fraud or evade the law.
Nonprofit Status and Tax Exemption
Tax exempt status is not automatic and all nonprofit corporations are not necessarily tax-exempt. Nonprofit status is a function of state law but tax-exempt is a status is a function of federal law and in some states a nonprofit corporation must also apply for tax-exempt status at the state level as well. In order to qualify for tax-exempt status, the corporation must be organized for one of the purposes allowed in the Internal Revenue Code.
Obtaining tax-exempt status is generally required in order to be eligible to receive grants from the government and private foundations. A tax-exempt status also allows donors to deduct contributions from their income taxes. In a nonprofit corporation, any money that remains as profits, after deducting expenses from gross receipts, cannot be distributed to the members, directors or officers but must be used to further the corporation’s purposes.
Why Form a Nonprofit Corporation?
Those uniting to provide services that will benefit society frequently form a nonprofit corporation in order to give its members, directors and officers limited liability protection and, when possible, enjoy the benefits of a tax-exempt status.
Some Points to Consider When Forming a Nonprofit Corporation