A Nonprofit Corporation is created to fulfill a civic, religious, educational, or charitable goal. Nonprofits are tax-exempt, and as such do not pay income tax. They may also be eligible to accept donations.
Forming a Nonprofit can be a complicated and lengthy process. It begins with filing Articles of Incorporation with the appropriate state agency. Then, to obtain tax-exempt status, a Nonprofit must apply with the IRS (Form 1023) and within the state(s) in which it will operate. What is considered an acceptable business purpose for qualifying for tax exemption may vary significantly from state to state.
A Nonprofit must adhere to some strict reporting and compliance requirements at the state and federal levels, or it could put its tax-exempt status in jeopardy.
Some potential disadvantages of the nonprofit structure are the restrictions on activities it may legally conduct and that it cannot be sold. At the time when a Nonprofit Corporation becomes dissolved, its assets must get transferred to another nonprofit organization.
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