What is a non-profit corporation and how do non-profit organizations begin?
A nonprofit corporation is a group of people who join together to do some activity that benefits the public, such as running a homeless shelter, an artists' performance group, or a low cost medical clinic. Making an incidental profit from these activities is allowed under legal and tax rules, but the primary purpose of the organization should be to do good work, not to make money. Nonprofit goals are typically educational, charitable, or religious.
Most nonprofits start out as small, informal, loosely structured organizations. Volunteers perform the work, and the group spends what little money it earns to keep the organization afloat. Formal legal papers (such as a nonprofit charter or bylaws) are rarely prepared in the beginning. Legally, groups of this sort are considered nonprofit associations, and each member can be held personally liable for organizational debts and liabilities.
Once a nonprofit association gets going and starts to make money, or wishes to obtain a tax exemption to attract public donations and qualify for grant funds, the members will formalize its structure. Usually the members decide to incorporate, but forming an unincorporated nonprofit association by adopting a formal association charter and operating bylaws is an alternative.
Most groups form a nonprofit corporation because it is the traditional form-the IRS and grant agencies are very familiar with it. Also, once incorporated, the individual members of the nonprofit are not personally liable for debts of the organization-a big legal advantage over the unincorporated association.
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