What Is a Non-Profit Corporation?

What Is a Non-Profit Corporation?

There are many different kinds of businesses. One type of business is called a non-profit corporation. Despite being a simple concept, many people do not fully understand what a non-profit corporation is and how it operates. It is simple to understand and this guide will explain the basics.

What Is a Non-Profit Corporation?

As the name implies, a non-profit corporation is a business that does not aim to make a profit. Rather, it has a different goal that all the money goes toward. A traditional business distributes the profits to the shareholders, but this is not the case in a non-profit corporation.

One of the biggest misconceptions about a non-profit corporation is that it cannot make a profit. It is easy to see how this misconception got started. A non-profit corporation can make a profit, but that profit has to be spent to further the business. For instance, all the employees in a non-profit still earn a salary. The profits of the business are spent to pay the employees. They may also be spent for administrative purposes or handling other operation costs.

Some of the most common types of non-profits corporations include:

  • Museums
  • Homeless shelters
  • Schools
  • Universities
  • Churches
  • Hospitals

Each of these corporations hopes to achieve a certain goal other than earning a profit. A non-profit museum uses the profits to provide exhibits, and a homeless shelter uses the profits to care for homeless individuals.

Taxation

One thing that sets non-profit corporations apart from other businesses is that they are exempt from taxation. Every other kind of business has to pay special business taxes and often other special fees. Non-profits, however, do not have this obligation. You need to meet very specific requirements to receive tax exemption, however. These requirements usually vary from one state to the next. For federal taxation, the requirements are universal nation-wide, of course. The technical term for non-profit tax exemption is 501c3 status.

Final Notes

If you hope to provide for yourself and your family with a business, it is best not to form a non-profit corporation. If your goal, however, is to create some good in your community, this is the best way to go about that. The benefits are designed specifically to make it easier to fulfill your goal and make a change in the world. Non-profits are more than just charity organizations. A non-profit may be used to provide a community service or better the community in some way. It is a good idea to speak with a business attorney, like a business lawyer in Charlottesville, VA, before getting started.

Thanks to Dale Jensen, PLC for their insight into business law.

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