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Non-Profit

Non-Profit: Advantages & Disadvantages

 
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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.