Not for profit corporation law, also referred to as non-profit law, refers to the specific laws that regulate how a nonprofit organization operates. Specifically, a nonprofit business is one that is established not to seek profit but rather to operate for the public, or for a particular public purpose. A nonprofit organization, also referred to as a 501(c) company, need not pay federal income taxes or other types of state taxes. But keep in mind that not all nonprofit organizations can be categorized as a 501(c); there are certain criteria that must be met in order for it to enjoy the 501(c) benefits.

Nonprofit Organization: An Overview

A nonprofit organization is used to carry out some kind of charitable purpose, whether it is to help the educational, religious, scientific, or literary sector. Generally, such organizations are able to raise funds through public and private grants, along with donations from the public and other for-profit businesses.

When operating a nonprofit organization, the business can benefit from federal, state, and local tax exemptions, along with property and sales tax exemptions. For example, any money that is generated and related to the nonprofit’s purpose will not be taxed due to the sole benefit to help society as a whole. But the most beneficial tax exemption comes from 501(c), as noted above. If the nonprofit company meets the criteria, it can deduct up to 50% of the adjusted gross income for donations that are made to the business.

Formation of a Nonprofit Business

Forming a nonprofit company is similar to that of any other business. The only difference is that there are a few additional steps to take in order to apply for tax-exemption status with the IRS. The steps required to form your nonprofit organization include the following:

  • Obtain documents from the Secretary of State’s office, i.e. nonprofit corporation laws and articles of incorporation
  • Choose a business name
  • File the articles of incorporation and pay the applicable filing fee
  • Apply for federal and state tax exemptions

You can visit your Secretary of State’s website to print out the articles of incorporation and nonprofit corporation laws. The laws will provide you with the requirements for forming and maintaining your nonprofit organization, along with rules for how to claim exemptions and become a 501(c) nonprofit organization.

Next, you’ll want to choose a business name. Be sure to choose a name that others will be able to easily identify as a potential nonprofit organization. Since the purpose of a nonprofit is entirely different than a for-profit organization, the nonprofit need not necessarily worry about naming the company to expand or increase its client base, as the organization is in existence to serve a greater public purpose. Furthermore, the nonprofit company can get its name out there by applying for private and public grants and seeking assistance from the public and other businesses.

After you have chosen you business name, you’ll need to fill out the articles of incorporation. This document will include your company’s name, address, purpose, directors or officers of the corporation, and whether you intend on applying for additional tax exemptions at the federal, state, and/or local level.

Thereafter, you will need to apply for the federal and state tax exemptions, which will be submitted in a separate document but submitted with the articles to the IRS. To apply for the exemption, you’ll have to fill out Form 8718, titled User Fee for Exempt Organization Determination Letter Request and IRS Package 1023, titled Application for Recognition of Exemption.

If you need help filling out those documents, you can read IRS Publication 557 on the IRS website.

Once you submit the documentation, a representative with the IRS will review the application and respond back indicating if you have been approved as a nonprofit organization, or alternatively, might reach out for additional information. Furthermore, the IRS might deny your application.

In addition to submitting these documents to the IRS, you might be required to submit separate state-level tax exemption applications depending on the state in which you are operating. However, some states indicate that so long as you registered as a nonprofit entity and obtained federal 501(c) status, you will automatically receive a state tax exemption.

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