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Nonprofit Corporation

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.

What is a Nonprofit?

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.

When might operating as a Non-Profit be preferable?

Existing Clients

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Manager Managed

  1. Popular where 1 or more of the owners will act as “Passive” investors
  2. Some owners may be “Passive” while others may be designated as “Managers”
  3. Some owners may be designated as Managers, some “non-owners” may be designated as managers, or any combination thereof may be designated.

Member Managed

  1. The most popular structure for LLCs with 1 or more owners.
  2. ALL Owners have control over the daily operations of the business.
  3. The owners have authority to bind the LLC by signing for a loan, negotiating and executing contracts, and managing other daily operations of the business.