Nonprofit Corporations

Overview

A nonprofit corporation is a corporation that is formed and operated for a recognized nonprofit purpose identified by state corporation law and federal and state tax statutes.  These generally fall into public purposes, religious purposes or the advancement of the interests of a limited group of persons sharing a common interest.

Nonprofit corporations share many of the attributes of regular for profit business corporations.  They are a separate legal entity providing their directors, officers and members with limited liability.  They may sue or be sued, incur debts and obligations, acquire and hold property, and engage, generally, in any lawful activity.  They may even engage in profit-making activities unrelated to their nonprofit purpose, though the income from such activities is subject to taxation and certain rules. There are no shareholders in a nonprofit corporation and for that reason it is also referred to as a non-stock corporation.

There are several types of nonprofit corporations: mutual benefit corporations, public benefit corporations, and religious corporations.

Mutual Benefit Corporations

A mutual benefit nonprofit corporation is formed primarily for the benefit its members or persons engaging in a particular business or activity, rather than for broader public purposes.  It therefore serves a smaller group of people since its business or activities tend to be of a limited nature.  In a sense, it is a "catch-all" category as it includes nonprofit corporations that do not meet the requirements of public benefit or religious nonprofit corporations.

Any nonprofit corporation that is not considered either a Public Benefit or Religious Corporation is a Mutual Benefit corporation.  Mutual benefit corporations typically include trade associations, automobile clubs, social groups, homeowners associations, etc.

Public Benefit Corporations

Public Benefit Corporations are formed for a public or charitable purpose rather than the more limited purposes of either the mutual benefit of members or the furtherance of religion.
 
Most Public Benefit Corporations are organized for scientific, literary or educational purposes, which benefit the public.

Religious Corporations

Religious Corporations are formed primarily or solely for religious purposes.  They are regulated by the nonprofit religious corporation laws of the states. However, because of the need to respect the separation of church and state, there is much less regulation of Religious Corporations than other types of nonprofit corporations.  Thus, there is great latitude afforded this type of nonprofit corporation in the establishment and transfer of membership interests, the structure of the management of the corporation and the regulation of management decisions.

A Religious Corporation need not be a formal church.  Religious purposes could include any group organized to promote the study or practice of religion.  In fact, it need not involve a group at all.  One person may form and operate a religious corporation for any purpose intended to promote religion.

Nonprofit corporations are not automatically tax-exempt. Nonprofit corporations are subject to federal income tax as well as state income and franchise taxes unless they qualify for tax-exempt status.  Applications must be filed with the IRS and often with a state to receive tax-exempt status. There are a number of provisions in the Internal Revenue Code (IRC) setting forth the types of nonprofits that qualify for tax-exempt status.


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