Nonprofit Corporations
1. What is a nonprofit corporation?
2. What steps need to be taken to form a nonprofit corporation?
3. When should a nonprofit corporation be established?
4. How do we apply for federal tax-exempt status?
5. How many directors are required for a nonprofit corporation?
6. What are the advantages of a nonprofit corporation?
7. Disadvantages of a Nonprofit Corporation?
1. What is a nonprofit corporation?
A
nonprofit corporation is not formed with the intent to realize a profit, but is
established for a religious, charitable, educational, literary or scientific
purpose. Qualifying nonprofit corporations will be granted tax-exempt status by
both federal and state authorities.
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2. What steps need
to be taken to form a nonprofit corporation?
Articles
of incorporation must be filed with the proper state agency. These articles of
incorporation must contain specific paragraphs in connection with the nature of
the nonprofit activities. We will prepare and file the nonprofit Articles of
Incorporation. A nonprofit corporation must apply for tax-exempt status with
both federal (IRS Form 1023) and state authorities. We do not prepare IRS form
1023, but will provide the proper documents for your completion upon your
request. A nonprofit corporation must follow certain corporate formalities,
including the adoption of By-Laws. Many documents which will assist in complying
with these formalities are contained in our Nonprofit Corporate Kit.
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3. When should a
nonprofit corporation be established?
A
nonprofit corporation should be organized when the intent is to pursue a
religious, charitable, educational, literary or scientific purpose permitted
under 501(c)(3) of the tax code. The specific purpose of the nonprofit
corporation must be properly set forth in its articles of incorporation so that
nonprofit and tax-exempt status may be obtained.
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4. How do we apply
for federal tax-exempt status?
For a
nonprofit company to qualify for 503(c)(3) federal tax-exempt status, it must
file IRS form 1023. Filing of Form 1023 must be postmarked within 15 months
after the end of the month when the Articles of Incorporation were filed. The
tax-exemption is effective retroactively to the date on which your Articles of
Incorporation were timely filed. When the IRS approves the tax-exemption, the
nonprofit corporation can be assured that contributions made to it are tax
deductible, and that the corporation is tax-exempt.
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5. How many
directors are required for a nonprofit corporation?
Most
states require nonprofit corporations to have a minimum of three directors,
however CA, CO, DE, IA, KS, MI, MS, NH, OK, OR, PA, SC, VA, WA & WV require a
minimum of only one director. In LA, MA, MN and VA less than three directors are
permitted if the nonprofit corporation has less than three members.
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6. What are the
advantages of a nonprofit corporation?
If your
nonprofit is granted tax-exempt status under 501(c)(3) of the Tax Code, your
corporation will be exempt from payment of federal corporate income taxes. In
addition, a 501(c)(3) nonprofit corporation may receive both public and private
grants. Further, individual donors can claim a federal income tax deduction of
up to 50% of income for donations made to 501(c)(3) groups. Nonprofit
corporations also enjoy the same limited liability protection as for profit
corporations. Accordingly, directors or trustees, officers and members are
typically not personally liable for the debts and obligations of the nonprofit
corporation. Other benefits include perpetual or unlimited life for the
corporation; retirement funds and retirement plans may be established more
easily; 501(c)(3) corporations receive lower postal rates on certain bulk
mailings.
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7. Disadvantages
of a Nonprofit Corporation?
Increased
paperwork that is required, including by-laws of corporation and the minutes of
meetings which must be recorded and kept with other corporate records. E-Z Inc.
can assist by preparing and filing your incorporation papers, and our Nonprofit
Kit contains preprinted sample by-laws and minutes of meetings. In addition,
applications for tax-exempt status must be filed at both the federal and state
levels.
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