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A nonprofit corporation may sound like a contradiction in terms. After all, isn’t a corporation a business, and don’t businesses exist to make money? Often this is true, but there are some organizations that operate as corporations but exist to benefit others rather than to turn a profit for their own shareholders.
A nonprofit corporation can make money, and many do. What sets it apart from a traditional, for-profit corporation is what it does with the money. There are advantages to operating a nonprofit organization, but you must also follow strict regulations in managing your finances or you could lose your nonprofit status.
How Is a Nonprofit Different From a Traditional Corporation?
At the end of the year, any financial surplus that nonprofit organization shows gets reinvested into the operation in the interest of continuing its stated mission. By contrast, a traditional corporation divides any year-end profits among employees and/or shareholders. While board members of a traditional corporation may receive a salary, the board of directors of a nonprofit serve as volunteers.
What Are Some Examples of Nonprofit Corporations?
Nonprofit organizations are those that exist to benefit a specific group (usually one that is disadvantaged in some way) or the general public good. Examples include educational groups, religious organizations, some political groups, and charities.
What Are the Advantages of a Nonprofit Corporation?
The biggest advantage of running a nonprofit corporation is that you may be exempt from paying income taxes. If you buy or sell a building, you are also exempt from paying real estate taxes. You can also apply for grants and receive donations from people, all while enjoying the personal liability for corporate debts characteristic of a traditional corporation.
You may want to raise awareness of your cause by running public service announcement on radio or TV. The broadcasters cannot charge you money for the airtime if you are a nonprofit organization. However, it is up to the broadcasters to decide whether or not they want to run your ad.
What Are the Disadvantages of a Nonprofit Corporation?
Setting up and operating a nonprofit requires a lot of paperwork. You must be able to demonstrate to the Internal Revenue Service or any other interested parties that you are complying with the requirements for a nonprofit. If you eventually decide to shut down your nonprofit, you cannot divide up any assets that remain among your board members. Rather you must donate them to another nonprofit organization.