Nonprofit Corporations

Advantages

Where a group doesn’t have a profit motive and doesn’t seek or qualify for tax-exempt status, it may still want the personal liability protection of a corporation. A nonprofit corporation is an appropriate choice in this situation. The classic example is a homeowners association.

More commonly, however, a group seeks to do good by providing a specific service for charitable reasons or to provide services or products in certain categories that are recognized as benefitting the public and therefore qualify for tax-exempt treatment.

The IRC lists literary, scientific, educational, or religious purposes as the categories of services or products that may qualify for tax-exempt treatment. These are commonly known as 501(c)(3) nonprofits. Their tax-exempt status facilitates fund-raising activities because they are recognized as meeting the requirements for such status and donations are therefore tax-deductible. Many corporations contribute primarily or exclusively to 501(c)(3) or other tax-exempt nonprofit corporations.


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