What is a nonprofit corporation?

Nonprofit corporations are organized under state law for a "public benefit," meaning for a purpose other than earning profits. They typically aim to benefit the public or specific public groups by providing charitable, educational, religious, literary, or scientific services. Nonprofit corporations range from small local charities to large nationwide companies, such as the Salvation Army or Big Brothers Big Sisters. Community foundations are also part of this group.

Section 501(c) of the income tax law provides for 29 types of organizations that are tax exempt, with a 501(c)(3) nonprofit organization being the most common type. An important feature of nonprofits is that they do not pay federal or state income taxes if they qualify under section 501(c)(3) of the IRC and the corresponding state exemption. For instance, charities are exempt from taxes because they provide a benefit to the community. Surplus profits typically are invested into the nonprofit's mission. Some 501(c)(3) groups will provide donors with a tax deduction for their contribution. In order to reap these benefits, you must file the appropriate paperwork with the government.

A nonprofit receives many benefits and protections when it chooses to operate as a corporation under state law, including protection of the directors and officers from personal liability for the nonprofit’s contracts and obligations.

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