Nonprofit corporations differ from profit-driven corporations in several respects. The most basic difference is that nonprofit corporations cannot operate for profit. That is, they cannot distribute corporate income to shareholders. The funds acquired by nonprofit corporations must stay within the corporate accounts to pay for reasonable salaries, expenses, and the activities of the corporation. If the income of a corporation inures to the personal benefit of any individual, the corporation is considered to be profit driven. Salaries are not considered personal benefits because they are necessary for the operation of the corporation. An excessive salary, however, may cause a corporation to lose its nonprofit status.
Advantages of a Not-for-Profit
- Not-for-Profits under Code 501(c)(3) are eligible for federal exemption from payment of corporate income tax and most likely state and local taxes.
- Eligibility for public and private grants.
- The formal structure of a not-for-profit separates those individuals associated with it from the organization itself.
- Limited Liability-Under law, creditors and courts are limited to the assets of these organizations.
Disadvantages of a Not-for-Profit
- Creating a nonprofit organization takes time, effort, and money. Applying for Federal tax exemption can cost $200-850 or more.
- As an exempt corporation, a nonprofit must keep detailed records and submit annual filings to the state and IRS by stated deadlines in order to keep its active and exempt status.
- Personal control is limited due to laws and regulations, including its own articles of incorporation and bylaws.
- A nonprofit is dedicated to the public interest; therefore, its finances are open to public inspection.
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