Considering to Start a Nonprofit
What is a nonprofit corporation?
A “nonprofit corporation” is a corporation no part of the income of which is distributable to members, directors, or officers. A nonprofit corporation is created by filing a certificate of formation with the secretary of state. A nonprofit corporation may be created for any lawful purpose, which purpose must be stated in its certificate of formation.
Is a nonprofit corporation a tax-exempt entity? If not, how do I become tax-exempt?
A nonprofit organization—whether a corporation or an unincorporated association—is not automatically exempt from federal or state taxes. To become exempt, the organization must meet certain requirements and apply with both the IRS and the primary State of programming.
What is the difference between nonprofit and tax-exempt status?
Nonprofit status is a state law concept. Nonprofit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions. Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code. See Types of Tax-Exempt Organizations or Publication 557 for more information.
What is the difference between a private foundation and a public charity?
The Foundation Center defines a private foundation as a nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations. Every U.S. and foreign charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is a “private foundation” unless it demonstrates to the IRS that it falls into another category. Broadly speaking, organizations that are not private foundations are public charities as described in the Internal Revenue Service Code.
Public charities generally derive their funding or support primarily from the general public, receiving grants from individuals, government, and private foundations. Although some public charities engage in grantmaking activities, most conduct direct service or other tax-exempt activities. A private foundation, on the other hand, usually derives its principal fund from a single source, such as an individual, family, or corporation, and more often than not is a grantmaker. A private foundation does not solicit funds from the public.
Not every organization that uses the word “foundation” in its name is a private foundation, and the word “foundation” has no legal meaning in and of itself. Instead you must look at how the IRS designates an organization and inquire as to whether it files a Form 990-PF (the annual information return filed by private foundations) or a Form 990 (the annual information return filed by public charities and other nonprofit organizations.
Can one person be the sole director and officer of a nonprofit corporation?
No. The Business Organizations Code requires a nonprofit corporation to have at least three directors, one president, and one secretary. The same person cannot be both the president and secretary. Officers and directors must be natural persons, but may be known by other titles.
Is there a fee for applying for exemption?
Yes, user fees apply to all requests for determination letters, including exemption applications. See IRS User Fees for complete information.