If you’ve decided to start your business by forming a social club, trade organization, or something similar, then you should form a for-profit corporation, LLC, or benefit corporation. However, if you are not following the goal of profit, then a nonprofit company is exactly what you need.
The aim of most nonprofits companies is to provide a benefit to the public, including charitable companies, educational, scientific, religious, and others. These charitable companies are referred to as Sec. 501 (c) (3) organizations, followed by the section of the Internal Revenue Code which provides them with tax exemption.
Let’s try to consider the advantages and disadvantages of having a nonprofit corporation, and try to understand whether it suits your business or not.
Advantages of a Nonprofit Corporation
Separate Entity Status: A nonprofit corporation exists separately. It can enter its own contracts, sue, or be sued in its own name. It is also responsible for its contracts and obligations. The person who enters the contract in his name can be liable if there is a chain of contract.
Perpetual Existence: A nonprofit corporation or LLC has a right to exist in perpetuity.
Limited Liability Protection: This type of corporation preserves directors, officers, and all the members from the responsibility of being personally accountable for the company’s debts and liabilities.
Tax Exemption: A Nonprofit Corporation is also able to apply for federal and state tax-exempt status.
Access to Grants: Most of the nonprofit corporations receive both public and private grants. This benefit varies by state; however, nonprofit companies are exempt from paying sales or property taxes.
United States Postal Service discounts: Nonprofit corporations can receive discounts and bulk mail rates.
Credibility: There can be more established credibility for nonprofit corporations, since most of the donors prefer donating to nonprofit corporations instead of others, because of the credibility.
Professional Registered Agent: Appointing a registered agent gives the ability to appoint a registered professional agent who gives a proper treatment of the critical, and time-intensive court documentation which will be served if the nonprofit companies are sued.
Disadvantages of Nonprofit Corporation
Expenses: For forming a nonprofit corporation, you have to file documents with the state business entity filing office. In many states, you find yourself paying annual fees.
Current Compliance Obligations: For nonprofit corporations, you will also have to comply with the provisions of the statute under which they have been formed. They have to file an annual report and make filings with the state upon several vital changes to the corporation.
Management Control: Nonprofit is regulated by nonprofit corporation laws, which can require a board of directors, meetings, quorums, and other obligations.
No Lobbying or Political Campaigns: A Nonprofit Corporation has some restrictions concerning their lobbying and political activities, affecting their capacity to advocate for their causes.
According to everything we mentioned above, you can see that the advantages and disadvantages of a nonprofit corporation are equal. If you are a beginner, it will be difficult for you to choose the best corporation for your business. If you have any questions or need any assistance with forming your company, feel free to contact Prestige Auditors and we will help you build a powerful and profitable business from scratches. And, to add more on top, we will also offer a myriad of eCommerce business solutions!
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