Nonprofits FAQ

Questions:

• What is a nonprofit corporation?
• What are the benefits of forming a nonprofit corporation?
• How do I form a nonprofit corporation?
• Is it difficult to run a nonprofit corporation?
• How do I convince people to contribute to our nonprofit before we get our tax exemption?
• Does my nonprofit need to register with the state in order to fundraise?
• Is it true that some nonprofits ask their board members to not only volunteer, but donate?
• What ratio of our nonprofit's funds are expected to go to services as opposed to administrative costs?
• I want to start a nonprofit -- does it matter that I've never worked in one?

Answer:

What is a nonprofit corporation?

A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit corporation doesn't pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives. This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations' activities entitle them to a special tax-exempt status.

The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called 501(c)(3) corporations. For more information, see Nonprofit Basics.