Generally, a nonprofit corporation is an organization that exists for charitable, educational, religious, literary or scientific purposes.
Incorporating in Nonprofit Articles of Incorporation
The first step toward forming a nonprofit corporation is to file articles of incorporation with the appropriate state office. In most states, this is the office of the Secretary of State.
The Articles of Incorporation for a nonprofit corporation must contain certain language as mandated by the Internal revenue Service if it intends to qualify for Federal tax exempt status.
Nonprofit Corporation with Tax-Exempt Status of 501(c)(3)
Under Section 501(c)(3) of the Internal Revenue Code, a nonprofit corporation may be exempt from taxation and may be eligible to receive tax-deductible donations from its contributors.
Restrictions and challenges:
- Cannot pay dividends
- Upon dissolution, corporate assets must generally be distributed to another qualified non-profit group.
- Complex filing requirements exist at both the State and Federal level to establish and maintain tax-exempt status.
- Prohibited from engaging in certain activities.
A common reason for forming a nonprofit corporation may be:
- Public Safety
The IRS defines exempt purposes as “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”
The term “charitable” is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
How to Form a Nonprofit Corporation
To form a nonprofit corporation:
- File nonprofit articles of incorporation (or a certificate of incorporation) with the appropriate state agency, along with payment of the required fee.
- File a separate application for 501(c)(3) tax-exempt status with the Internal Revenue Service.