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What Does a Not-for-Profit Corporation Mean?

Filing articles of incorporation creates a not-for-profit corporation.

A not-for-profit corporation is created according to the corporation laws in the U.S. The process for creating and running a not-for-profit corporation is nearly identical to that associated with a corporation created for profit, according to "How to Form a Nonprofit Corporation" by Anthony Mancuso. A not-for-profit corporation is also referred to as a nonprofit corporation.

Function

The function of a not-for-profit corporation allows an organization to enjoy the legal protections associated with the corporate business structure without the tax liability. For example, a private school organizes as a not-for-profit corporation and therefore its staff cannot be sued individually for any injury caused to a student while at the school. In addition, because the organization does not generate a profit, it does not pay taxes.

Time Frame

State laws permit a not-for-profit corporation to be organized either for a specific period or indefinitely. The term of existence of a not-for-profit is determined by its articles of incorporation. For example, a hospital would be incorporated indefinitely, while a special cultural event may incorporate for a specific period of time.

Warning

Merely because a corporation is designated as a not-for-profit does not mean it is excused from other requirements associated with a corporate legal structure, according to "Starting and Building a Nonprofit: A Practical Guide" by Peri Pakroo. For example, a not-for-profit corporation must keep and maintain its board meeting minutes, just as for-profit corporation does. Also, a not-for-profit must prepare and submit an annual report to the secretary of state in the jurisdiction where it was created.

Misconception

A common misconception associated with a not-for-profit corporation is that it cannot generate excess revenue in any given tax year. A not-for-profit can and should generate excess revenue annually and maintain an emergency fund for unforeseen expenses. The prohibition is against generating profits paid to third parties, not revenue and a healthy balance sheet.

Expert Assistance

Because of the unique status of a not-for-profit corporation, many chose to retain a qualified attorney. Many organizations maintain an attorney on their board, a professional who often donates her services to the organization. The American Bar Association offers resources for finding attorneys with experience in not-for-profit law.


References

  • "starting and building a nonprofit: a practical guide"; peri pakroo; 2009
  • "how to form a nonprofit corporation"; anthony mancuso; 2009

Resources


Article Written By Mike Broemmel

Mike Broemmel began writing in 1982. He is an author/lecturer with two novels on the market internationally, "The Shadow Cast" and "The Miller Moth." Broemmel served on the staff of the White House Office of Media Relations. He holds a Bachelor of Arts in journalism and political science from Benedictine College and a Juris Doctorate from Washburn University. He also attended Brunel University, London.