The primary benefit of being a non-profit (or not-for-profit) corporation is that you are
exempt from paying income taxes. You must qualify for tax-exempt status under the
Internal Revenue Code Section 501(c)(3). Should you attain this status, not only is
your corporation exempt from paying taxes, but people, corporations, or other
organizations that contribute to your corporation can take a tax deduction for those
contributions.
There are other benefits, too. For example, if you do a lot of mailings, you can
qualify for the lower "non-profit" postal rate. Plus, there is the positive image a
non-profit connotes: it tells people that you're in business not for the money but for
a higher purpose.
Typically, tax-exempt status is reserved for corporations formed for religious,
charitable, literary, scientific, or educational purposes. This could include: child care
centers, museums, research institutes, dance or music groups, places of worship,
schools, community groups, and others.
Of course, you don't make money from a non-profit company; once you put assets
in, they become property of that corporation and must be dedicated to specific
non-profit purposes. And you can't sell the business to get your money back. A
non-profit company goes on; if it is sold, liquidated, or otherwise ends, the assets
must be passed to another non-profit corporation.
There are other responsibilities and restrictions to running a non-profit business, too
numerous to list here. If you are seriously considering forming a non-profit
corporation, you might want to get in touch with legal and/or tax counsel that
specializes in this area.
Benefits
- Tax-exempt status
- Contributions are tax deductible
- Helps project an altruistic image for company
Disadvantages
- Tax advantages limited to companies formed for religious, charitable,
literary, scientific or educational purposes