In the business world, you have no doubt heard the term “nonprofit organization.” You may be familiar with certain businesses that fall into this category. If you are starting a business, you might be interested in operating under this status. Depending on the makeup and purpose of your company, you could be granted this status. Before you open the doors to your company, it’s helpful to understand the key elements of any nonprofit and what sets one apart from a for-profit company, as a business attorney, can explain.
Tax Status
Perhaps the most important factor in being a nonprofit organization is how it pays taxes. Nonprofits are tax-exempt, meaning they don’t have to pay taxes on any of the donations they receive. This is the case whether the donations are made in cash or in goods or materials by either individuals or other businesses. Similarly, if the nonprofit engages in fundraising, any proceeds the company generates through these activities aren’t subject to taxes. People and businesses who donate to such organizations can receive benefits as well. Anyone who makes a donation to a nonprofit group can claim the donations as tax deductions.
Type of Business
Only certain types of businesses will be granted tax exemption by the Internal Revenue Service. Such a designation is only given to organizations such as those in religious, scientific, charitable, literary, public safety or charitable pursuits. Examples would be churches, colleges and universities, hospitals and research organizations.
Benefiting the Public
A nonprofit organization must fill a role to benefit society. It is never a self-serving group but rather advances the general good in the world. These companies can still offer goods and services but do so in a way that serves the population’s needs.
Makes Known Their Financial Information
A nonprofit organization must publish financial statements on a quarterly or annual basis. This helps donors and the public to see how the organization is using its donations. It helps to keep the organization accountable. To maintain the tax-exempt status, nonprofits usually publish such information in an annual report. This will also include the salaries of directors, officers and other employees.
Stay Away from Politics
Political organizations cannot be nonprofits. No such business can endorse a political candidate or engage in any fundraising or campaigning for anyone running for public office.
Consider these elements of a nonprofit organization. It might make sense for your company to operate under this status, so be aware of the rules you will need to follow.