Should I form a nonprofit or a for-profit corporation?

Often, the choice between entity types is relatively straightforward. Organizations seeking to provide charitable, educational, religious, literary, or scientific services to their communities typically need to obtain nonprofit status in order to become eligible to receive funds from government and private foundations in the form of grants and donations.

The following are examples of common types of nonprofit organizations:

  • Health clinics and hospitals
  • Schools and educational institutions
  • Museums and art groups
  • Conservation centers
  • Homeless shelters

The main benefits of forming a nonprofit corporation include the various exemptions from paying certain federal, state, and possibly, local taxes. Protection from personal liability for the nonprofit's debts and other liabilities is available for the members, directors, and officers; note, however, that this protection is not unique to nonprofits and is also available for the key personnel of for-profit corporations and LLCs.

One obvious reason to choose another business entity type over a nonprofit is if you plan on seeking profits or think that your business can have the best of both worlds by simultaneously making profits while serving the community.

Keep in mind that just because a nonprofit’s primary purpose is not to earn a profit, it does not mean that the nonprofit's managers cannot make a decent income. So long as the income is considered “reasonable” given the position and industry area, corporate managers and employees may take home sizeable salaries. According to a report by The NonProfit Times, the median executive compensation in nonprofits in 2014 was about $100,000, and CEOs at the largest charities routinely have annual salaries in the millions.

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