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Non-profit Corporation

A non-profit Corporation in the USA is a non-business entity whose focus is not to make profits but to work towards specific social issues related to a particular section of society.

Package inclusions for Non-profit corporation registration in the USA:
  • Advice on the procedure for registration of a non-profit corporation in the USA
  • Advice, search and filing of name approval application with the respective authority
  • Collection of various documents and filing of online application
  • Filing of a tax exemption application
  • Guidance on compliance related to Non-profit corporation registration in the USA
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Non-profit Corporation Registration in USA

A non-profit corporation is incorporated as a non-business entity or not-for-profit organization in order to achieve or advocate a specific social cause. These organizations, to achieve a particular goal, use their surplus income for a social purpose rather than the distribution of dividend among its shareholders or members. Even on the dissolution of the organization, members are not entitled to any division of profit. Any LLC formed under state laws or any association which comprises of three or more people at national level can initiate non-profit corporation registration in the USA.

The distinction between Non-profit corporation registration in the USA and other business organization in the USA:

There is a specific difference between typical business entities like C-Corp or LLC or Inc and a not-for-profit organization as defined below:

  • The main intention behind registration of non-profit corporation in the USA is not to make money but to work towards a particular social issue. Due to the reason, while starting a Non-profit corporation in the USA, a specific purpose or aim needs to be defined by state laws as well as federal rules and regulations. Similarly, in case of a charitable trust, there should be special mentioning of provisions related to corporate matters. Specifically, these include requirements which are related to a. distribution of asset of the company on its dissolution; b. further restriction on engagement in propaganda or government influence; c. restriction on any self-dealing, etc.
  • Shareholders of a non-profit organization cannot divide dividend among themselves even on the dissolution of an organization. It doesn't mean that these organizations don't make any income. The income or profit generated by these companies is donated towards the social cause as defined under the organization's objectives. These organizations get some tax exemption due to the reason.
  • Further, non-profit corporation in the USA technically don't have any owners or shareholders. Being a non-profit organization, owners are forbidden to charge more than a specific remuneration or fee to disperse their duties towards the organization.
  • Setting up or incorporating a corporate business entity or an LLC is less cumbersome than Non-profit corporation registration in the USA. Further, to get tax exemption or the 510C3 status, the specific procedure needs to be followed.
  • Accounting standard and creating an annual report is much more complicated than a typical business entity.

Various categories of Non-profit corporation registration in the USA

There are primarily two types of non-profit entities that persist in the USA as per IRS 501(c) code. These are a non-profit organization (NPO) which serves public by goods and services, and another is a not-for-profit organization (NFPO) which serves only a specific group of people. Organizations incorporated under 501(c)(3) primarily focus towards charitable, religious, literary and educational works. Other primary types are as defined below:

Various categories of Non-profit corporation registration in the USA
  • Public, Charitable or religious organizations

    These fall under section 501(c)(3) of IRS code. These include various religious, charitable, educational or scientific organizations which focus on providing services to a particular section of a society free of cost or at a much lower rate. This Non-profit corporation in the USA receives funds from the general public in the form of donations either through private donations or money received by the organization for a particular event or by government aid. These types of non-profit corporations in the USA comprise the largest non-profit organizations in the USA, having nearly 1 million organizations registered in the state. These types of organizations are tax exempt.

  • Social welfare organizations

    This category of Non-profit corporation registration in the USA fall under section 501(c)(4) of IRS code. These organizations work towards creating awareness towards the general public on any social or political issue. Further, they also engage themselves in fundraising programmes or lobbying to create awareness among society. Specific well known organizations that fall under this category are NAACP, Greenpeace, ACLU, and the National Organization for Women (NOW). Funds are collected through donations or various memberships.

  • Labour Unions

    This type of Non-profit corporation registration in the USA is instituted under Section 501(c)(5) of IRS code in the USA. All labour, along with agricultural and horticultural organizations fall under this category whose motive is to educate and improve the working conditions by enhancing the quality and efficiency. Funds are collected through donations and member dues.

  • Trade or Professional Organizations

    This type of Non-profit corporation registration in the USA is instituted under Section 501(c)(6) of IRS code in the USA. This Non-profit corporation comprises various business leagues, commerce chamber and real estate board. These organizations are qualified to engage in political activities and take donations.

  • Business Foundations

    The main objective of this organization is to sponsor various awareness programs and events to educate people. Additionally, it provides funding to other non-profit organizations by donating a particular portion of its income. These organizations are generally established by wealthy personnel or business persons who want to contribute a specific part of their income for welfare of society. These organizations are prohibited from engaging in any political activity. Some premier examples are Ford Foundation and Bill & Melinda Gates Foundation, etc.

  • Veterans Organizations

    This type of Non-profit corporation registration in the USA is instituted under Section 501(c)(19) of IRS code in the USA. This organization is formed by active or ex-members of armed forces which comprise 75% of members in the group. The organization collects funds through donations, and the main aim is to assist US armed forces.

The procedure of Non-profit corporation registration in the USA:

The process of Non-profit corporation registration in the USA is almost similar to that of a for-profit organization. However, there are specific variations in the process. The procedure of Non-profit corporation registration in the USA is as mentioned below:

The procedure of Non-profit corporation registration in the USA
  • Step-1: Appointing a registered and authorized agent

    The procedure of Non-profit corporation registration in the USA is little cumbersome in comparison to for-profit organizations in the USA. However, only an authorized person or agent can do Non-profit corporation registration in the USA. So it is always recommended to appoint a qualified agent to start your non-profit organization registered in the USA. The agent is responsible for collection, documentation and further submission of documents with authority. Further, he is responsible for receiving any communication or reports from the respective authority in this regard and do comply with all provisions as prescribed.

  • Step-2: Picking of non-profit organization name

    The next step is to choose an entity name. As different states in the USA have different rules and regulations; it is always advisable to do proper research regarding state laws w.r.t non-profit corporation registration in the USA. Organization’s name needs to be unique, so before proceeding further with the application, do name availability search. Once the name is approved, it is advisable to register the organization name and logo with the respective authority.

  • Step-3: Decide the type of non-profit organization

    The next decision to make is regarding the kind of body or organization for Non-profit corporation registration in the USA. As discussed above, there are various types of Non-profit corporations in the USA. One has to decide whether he wants to register a trust, or a corporation or any association.

  • Step-4: Collection and submission of documents with authority

    The agent is responsible for the collection of records of all the members or critical officials of the non-profit organization. The agent is further required to draft bylaws and to submit an application with respective authority for their appointment.

  • Step-5: Articles of Incorporation

    The next step is to prepare articles of incorporation as per rules and regulations prescribed by the individual state. As every state in the USA has different rules w.r.t the establishment of non-profit entities, so it is always advisable to do proper due diligence. It is pertinent to make the addition of specific clauses to get tax exemption. In some states, some additional requirements and approvals need to be taken, for instance, in New York; consent from several state agencies is required to be taken for non-profit organization registration.

  • Step-6: Business Purpose

    The next step is defining the business purpose of an organization in a detailed form. A most common type of non-profit organization is charitable trusts as established under section 503(c)(3) of IRC code. These include various religious, charitable, educational or scientific organizations which focus on providing services to a particular part of a society free of cost or at a much lower rate.

  • Step-7: Tax-exemption application

    After incorporation of the organization, the next most crucial step is the filing of a tax-exemption application with the federal income tax authority. Specific provisions and guidelines have been provided by IRS that needs to be followed to get tax exemption.

  • Step-8: Getting federal tax id number

    Next step is the filing of federal tax Id with authority in the Form SS-4.

  • Step-9-Take other necessary licenses and permits

    As per the type of organization, every set up is required to take specific prescribed licenses and permits as prescribed by a particular state. In case of failure to comply with the same, heavy penalties can be imposed.

Procedure to achieve 501C3 status:

After Non-profit corporation registration in the USA, an organization can apply for tax-exemption status by 501C3 status with the IRS. But specific criteria need to be followed to meet the same:

  • First criteria are that the Board of Directors needs to be individuals and not firms as per rules prescribed by various states in the USA.
  • The non-profit organization is required to create a purpose statement as per guidelines given by various states and IRS. There are various types of non-profit organizations which have a different scope of work. As per its category, a non-profit organization is required to mention the scope of work in the purpose statement.
  • All the assets of an organization need to be dedicated to other charities, especially the dissolution statement of corporate.

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Frequently Asked Questions

Yes, non-profit organizations are eligible for tax exemption as their primary focus is on different social issues of society.

1. Public Charitable or religious organizations
2. Social welfare organizations
3. Labour Unions
4. Trade or Professional Organizations
5. Business foundations
6. Veterans organizations

Non-profit organizations are incorporated as a non-business entity or not-for-profit organization or non-profit corporation to achieve or advocate a specific social cause.

In case a non-profit organization wants to apply for tax exemption, they need to file 501C3 status with the IRS.

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