How To Articles

What is the difference between a nonprofit corporation and a regular for-profit corporation? Aside from the name, the two entities can be separated by other differences ranging from the way each is operated to various tax implications. Below, you’ll find an in-depth analysis of for-profit and nonprofit corporations. 

Shareholders vs. no shareholders

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States.

If your nonprofit is planning to actively engage in public fundraising, you’ll need to register the nonprofit as a charity in most states before you begin soliciting donations. Below, you’ll find a checklist of everything you need to do to make sure the job is done right. 

Ready. Set. Game Plan.

Before you begin filling out your charity registration application, you’ll want to know and have several things prepared ahead of time. In what ways will your nonprofit approach solicitation? Do you have a prepared financial history of your nonprofit organization? Will you be hiring professional solicitors? These are all questions to which you’ll want to know the answers, and have copies of the paperwork ready to go.

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States.

Recent counts by the National Center for Charitable Statistics estimate that there are currently more than 1.5 million active nonprofits in the United States. With a business structure so popular, you’d think it would be easy to describe what exactly a nonprofit is; however, if you can do so in a sentence or two, consider yourself part of a minority. Many people attempt to classify nonprofits as charities, which does fairly capture some nonprofits, but that description doesn’t describe exactly what a nonprofit is or how a nonprofit functions. 

Definition

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States.

One of the great misconceptions surrounding nonprofit corporations is the idea that they all qualify for tax exemptions. The truth is that jumping through all the hoops to obtain tax-exempt status is hard work and many nonprofit organizations pay taxes like their for-profit counterparts. For those that do qualify for tax-exempt status, the most common designation, known as a 501(c)(3) status, is available for entities that qualify as public charities and private foundations. This one designation, however, doesn’t come close to providing options for the wide range of nonprofit organizations in existence.

To accommodate many other kinds of nonprofit organizations seeking tax exempt status, the IRS has created 33 different tax-exempt statuses for which nonprofits can apply. See the chart below for more information:

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States.

While all charities are nonprofits, not all nonprofits are charities. 

While all charities are nonprofits, not all nonprofits are charities. Here, you’ll find the primary differences between the two:

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States.

Do you want to start a business in order to help your community at large and benefit society in some way? If these are your goals, it is wise to consider a nonprofit business entity. Before starting a nonprofit, it is important that you have the right frame of mind to operate one. A nonprofit requires a lot of time, energy, vision, and talent, and a strong desire to reach the nonprofit’s goals. 

Forming your company as a nonprofit corporation has a number of benefits if your end goal is to benefit a group or the public at large:

Tax benefits

: Many nonprofits are able to apply for 501c3 tax-exempt status, which exempts them from federal corporate tax. Once 501c status is obtained, then generally there are also state tax exemptions, such as state income tax and franchise tax, which nonprofit corporations may be exempt from paying as well.

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States. 

If your nonprofit corporation is preparing to do business in a new state, you’ll need to register your nonprofit organization as a foreign entity in every state in which you want to solicit donations or sell products and services. The act of registering your nonprofit to do business out-of-state is known as “qualifying a foreign entity,” and below you’ll find everything you need to know about qualifying your nonprofit to do business in all 50 states: 

The Qualification Process

Qualifying your nonprofit to do business outside of the state in which it was incorporated is a state-by-state process. Each state has particular requirements, but all states have one thing in common: a certificate of authority form. The actual name of the form varies slightly from state to state, but in each state the certificate of authority is the main document you will need to file. This form is filed with the secretary of state or corresponding agency.

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States. 

The biggest difference between a benefit corporation and a nonprofit organization is that the benefit corporation is a for-profit corporation and the nonprofit is a not-for-profit corporation. What this means is that no individual within a nonprofit is legally allowed to profit from dividends and additional money left over at the end of the fiscal year after all expenses have been covered. At the end of a fiscal year, if a corporation had dividends or additional leftover profits after all expenses have been taken care of, it can be distributed among shareholders as a profit. This is not an option for nonprofits, who do not have shareholders, and whose profit must go towards the purpose for which the organization was formed. Also, a benefit corporation can declare that total shareholder profit is not their primary goal. They can declare certain profit sacrifices in order to instead benefit the environment or society in some way.

Defining a benefit corporation

The primary difference here is in the fact that a benefit corporation has a charitable or socially conscious purpose that it makes provision for in its budget. So a benefit corporation was formed and exists to make a profit for its shareholders, and operate in the way that a regular corporation does. They do, however, follow a few additional guidelines:
  • Benefit corporations issue annual transparency reports.
  • Benefit corporation commit to operating in a sustainable fashion.

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States. 

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Zipcar for BusinessZipcar is the world's leading car sharing network with operations in urban areas and college campuses throughout the United States, Canada, the United Kingdom, Spain and Austria. Zipcar offers more than 30 makes and models of self-service vehicles by the hour or day to residents and businesses looking for smart, simple and convenient solutions to their urban and campus transportation needs. Zipcar is a subsidiary of Avis Budget Group, Inc. Learn more at Zipcar.com.

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About the Author

Zipcar for BusinessZipcar is the world's leading car sharing network with operations in urban areas and college campuses throughout the United States, Canada, the United Kingdom, Spain and Austria. Zipcar offers more than 30 makes and models of self-service vehicles by the hour or day to residents and businesses looking for smart, simple and convenient solutions to their urban and campus transportation needs. Zipcar is a subsidiary of Avis Budget Group, Inc. Learn more at Zipcar.com.

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