Nonprofit corporations are a crucial part of our economy and serve a variety of individuals and interests. One of the unique elements of nonprofits is the way they are formed and function. Nonprofits operate differently than for-profit LLCs and Corporations. Although each nonprofit may have a different mission, all share a common purpose of benefiting society is a tangible way.

Nonprofit organizations enable people to combine resources for achieving common goals. People start nonprofit organizations to address social problems or respond to specific needs in their community. Professionals such as doctors, engineers, lawyers, start nonprofit associations to establish standards and promote their profession. Nonprofit organizations can be churches, charitable organizations, labor unions, credit unions, trade associations, fraternal societies, schools, and social clubs.

Here are some of the rules that apply to nonprofit corporations and make them unique.

Operation as a Non-Stock Corporation

A nonprofit corporation falls into the category of a non-stock corporation, which means that it does not issue shares of stock and is owned by members. This is a contrast from regular Corporations that issue stock. However, it is important to note that non-stock for-profit corporations can be created. These are often times only formed for a specific transaction and do not serve a long-term purpose.

Nonprofit IRS Language

When forming your business it is important to be clear about the intentions of your organization and if you plan to operate as a nonprofit. Some states, such as Delaware, require that your intent to operate as a nonprofit along with any exemptions be disclosed upon the formation of your business. Nonprofit corporations can operate under IRS Code 501 (c) (3) and IRS Code 501 (c).

IRS Code 501 (c) (3)

According to Irs.gov, “To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.” If your nonprofit corporation falls within IRS code 501 (c) (3) you will need to complete IRS Form 1023. This form serves as an application for exemption and should be filed as soon as possible. There is a requirement to file this within 15 months of formation. Organizations must fit into certain categories such as charitable or scientific in order to file under 501 (c) (3).

Additional Sections of IRS Code 501 (c)

There are other options available for nonprofit corporation formation under IRS 501 (c) code, which applies to organizations such as social and recreational clubs, fraternal organizations, and trade associations. If your nonprofit corporation falls within these categories there is a different application required for the process.

Before proceeding with the formation of a nonprofit corporation, schedule an appointment to meet with a legal professional and a CPA. These specialists have the expertise and experience to make sure that your nonprofit is in compliance, and will be able to answer any questions you may have related to items such as tax exemption and IRS code. The IRS also offers a publication with additional information about tax-exempt status titled “Tax-Exempt Status for Your Organization.” If you have any additional questions during the process consult with a Registered Agent to discuss how nonprofit corporations are formed.

The post Four Rules that Apply to Nonprofit Corporations appeared first on Nonprofit Hub.

Source Taken From: Nonprofithub.org