Further, in some states and some types of organization may be exempt fromsales taxes and property taxes. Legitimacy and Credibility — Being recognized by the IRS as a c3 will makeyour organization more official and credible in the eyes of the public and otherentities. Deducibility of Donations — Your individual and corporate donors will be able todeduct their donations from their personal and corporate taxes. Your organization canacknowledge and thank its donors by providing a tax deduction receipts for cash andnon-cash donations.
Once you areapproved you will be listed with the IRS and receive an IRS Letter of Determination toprove your status when applying for grants and seeking corporate donations. Limited Liability Protection — Nonprofit corporations provide their founders, officersand directors with protection against personal liability for the activities of the nonprofit. Board members , officers, and employees of your organization receive protection from liability for corporate debts or lawsuits. Creditors can only go after your organization's corporate assets, not the personal assets of the people who manage, work for, or volunteer for your nonprofit.
Personal liability can also occur should a staff member or volunteer strays outside the boundaries of what is permissible politically. Nonprofits can only participate in limited political activities. If someone becomes overzealous and oversteps the boundaries, the organization could be sued. Incorporation provides protection. Even if you do incorporate and receive some of these protections, it is wise to purchase liability insurance to cover situations that may lie outside of incorporation law.
A corporation is separate from the individuals who manage or organize it. It is this separate legal existence that provides protection from liability. But it also means that the organization becomes immortal in a way. The nonprofit corporation continues to exist beyond the lifetime or involvement of the people who began it or who have managed it. Because the organization persists in this way, it is more attractive to donors who want to fund a cause for the long term. Being a corporation opens the door for employee benefits such as group life insurance, health insurance, or a pension plan, advantages not always available to workers in unincorporated organizations.
Forming a nonprofit corporation is not simple. But the preparation forces clarity about mission , operating rules, and procedures for decision making.
It's essential for a nonprofit, whose board members may hold opposing ideas, to have clear-cut rules about delegation of authority and how to get things done. Having all of these principles in the articles of incorporation and bylaws makes running the organization much easier.
Other advantages of incorporation include exemptions from county real and personal property taxes, lower postal rates on third-class bulk mailing, cheaper advertising rates, free radio, and television public service announcements PSAs , and more—depending on your activities.
Disadvantages of incorporation include a lot of paperwork and some expense. The rules and regulations are designed with the intent that nonprofits will start out strong and enjoy long-term sustainability. Small Enhancements, Big Impact We think beyond board books. Our product vision and guiding principles allow…. Here are some of the basic categories: Charities Hospitals Religious organizations Educational institutions Scientific organizations Literary groups Groups that test for public safety Groups that foster national or international amateur sports competitions Anti-cruelty organizations for animals and children The federal government also classifies private foundations as nonprofit organizations.
Start-up Rules for c 3 Organizations A c 3 organization typically begins when a group of people share a common goal of starting a nonprofit organization to fill a need within their community. Requirements to Maintain c 3 Status The government intends for nonprofit entities to remain nonprofit entities, so they set up some rules that tax-exempt organizations must obey in order to keep their tax-exempt status.
Here are six things to watch out for: Private benefit. Organizations that apply for tax-exempt status cannot serve the private interests, or private benefit, of any individual or organization besides itself past an insubstantial degree. Therefore, a nonprofit may not permit any of its income or assets to benefit insiders, such as board members, officers, directors and important employees. Nonprofits are not allowed to urge their members to support or oppose legislation.
Political campaign activity. A nonprofit organization may not financially support or endorse any political candidates verbally or in writing. They may not oppose candidates either. This rule applies to candidates at every level — local, state and federal. Unrelated business income. An organization that regularly operates a trade or business that is unrelated to the nonprofit and makes significant contributions to the organization would need to pay taxes.
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