Non-Profit: Advantages & Disadvantages
What is a Non-Profit?
A non-profit is an organization that is formed for the purpose of pursuing a charitable, religious, educational, or scientific purposes and is not a for-profit business. Usually, non-profits are formed into non-profit corporations. Unlike a C or S corporation, a non-profit corporation does not have any shareholders, but it does still have a board of directors. For the most part, a non-profit corporation is formed by following the same requirements to form a C corporation.
Advantages of A Non-Profit
Limited liability for you and co-owners – Everyone will not be personally liable to the actions of every other person or to any debts the non-profit takes on
State and Federal tax exemptions – If your non-profit meets the requirements, it can qualify for state and federal tax exemptions
Tax deductible donations – Anyone who donates money to your non-profit can use the donation amount as a tax deductible on their income tax forms
Government funding – Your non-profit may be able to receive several government grants designed for non-profit corporations
Disadvantages of A Non-Profit
Ongoing compliance upkeep – There are numerous corporate and legal formalities that you must follow and observe in order to keep the corporate limited liability protection
Failing to follow the formalities may result in your business losing limited liability protection
Not easy to form – There are numerous documents to create and file and ongoing compliance matters to keep track of even after forming the non-profit
Relatively expensive – With more documents to create and file, there are added costs to pay to file the documents and additional legal fees in creating the required documents
Increased government scrutiny – Because non-profits receive tax exemptions, federal and state agencies will pay closer attention to how your non-profit operates
Costs of Starting A Non-Profit
Business License/Permits – check out http://www.calgold.ca.gov/ to know exactly what licenses and permits you need to obtain to conduct business in your particular city and county
Creating and Filing Articles of Incorporation
Creating the Bylaws (if hiring a business lawyer to draft them)
Filing Statement of Information
Obtaining an Employer Identification Number (EIN)
Applications for tax exemptions
Intellectual property protection, such as registering the non-profit name as a trademark or registering any copyrights or patents your business may have
*The above article is for general informational purposes only and should not be taken as legal advice. Please contact a business lawyer to find out how any information here applies to your particular circumstances.