Non-Profit Corporation

A non-profit corporation is a business that does not operate for profit purposes. There are tax advantages to receiving such a qualification. In this article, we will go over how non-profit corporations work and how to set one up.

Creating the Corporation

The first step in creating a non-profit corporation is creating a corporation in your state. To do this you will need some basic information. This would include the names and addresses of directors, a statutory agent, and a business name that is not in use. Once your state approves your non-profit corporation, you will need to file for 501(c)(3) status with the IRS.

501(c)(3) Status

Filing as a 501(c)(3) with the IRS gives you tax exempt status. This means you are exempt from paying federal income tax for your business. However, your business must fall within a specific purpose to qualify. These purposes include charitable, religious, scientific, literary/educational, testing for public safety, fostering nation or international amateur sports competitions, or preventing cruelty to children or animals.

To apply you must first obtain an Employer Identification Number, or EIN. You will need that number to complete Form 1023. This is the extensive application for receiving 501(c)(3) status. In this form, you will outline your governing structure, purpose, and planned programs. The IRS will review this information to ensure the corporation is being formed exclusively for proper 501(c)(3) purposes. It typically takes 3-5 months for this application to be processed. You will receive either a letter granting or denying your request. If you are denied, you can appeal.

Maintaining 501(c)(3) Status

Once you receive 501(c)(3) status, you will need to comply with certain steps to maintain your status. First, you must ensure that your non-profit corporation operates in the way you laid out in your agreement. Second, you must hold regular meetings of the board of directors and take notes during this meeting. Third, you must annually file Form 990 with the IRS. With this form you are reporting activities, governance, revenue, net assets, and expenses to the IRS. Fourth, you must keep all non-profit transactions separate from personal transactions. This means maintaining separate bank accounts and credit cards.

First you are not allowed to participate in political campaigns or allow a substantial part of your activities to be used to influence legislature. Sixth, you must have funding coming in from multiple sources. If your funding is mainly coming from one source, you could be classified as a private foundation. Seventh, no one from your organization can be unjustly enriched by organizational funds. Eight, you cannot use your tax-exempt status to further non-exempt or illegal purposes. Lastly, you cannot earn business income that is unrelated to your purpose.

Setting up Your Non-Profit Corporation

Setting up your non-profit will be a two-step process. First, you will need to set up your corporation with your state. Second, you will need to file for 501(c)(3) status. If you need help with this process, you can contact a document preparation service or accountant that can help you complete these steps.

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