While incorporating a nonprofit organization does require a lot paperwork, it is usually worth it for many organizations to gain nonprofit status - for several reasons which will be described in detail. If you are wondering if you should take the next step to incorporate your fledgling nonprofit, here are several situations in which you definitely should.
Important Reasons to Incorporate Your Nonprofit
Learn about important reasons to incorporate your non-profit.
1. You will make a profit from activities
If your organization makes a profit from activities, incorporation offers a huge benefit. Provided the money generated is related to charitable activities, your organization will not pay income taxes.
It is a myth that a nonprofit corporation cannot make a profit - Yes, really. Under the law, a nonprofit corporation exists to fulfill a recognized purpose, whether it is literary, scientific, educational or charitable. As long as your corporation is operated for a recognized purpose and has the right tax exemptions selected, you can take in more money than your organization spends on activities which many people are not aware of.
2. You want tax-deductible contributions
Once you are a tax-exempt nonprofit corporation, you can solicit tax-deductible contributions from the public. Donors will be able to deduct their gifts to your organization on their personal income tax returns. It is clear that this can greatly increase the number of donations you receive.
3. You might get into legal battles
While the vast majority of non-profits engage in limited political advocacy without following special federal lobbying laws, some advocacy efforts can draw a non-profit organization into a lawsuit which is the last thing a non-profit organization wants or needs.
4. You want personal liability protection for the organization's activities
Finally, if your nonprofit is the target of a lawsuit, incorporation can protect members and directors from personal liability. Without this, the homes, cars, retirement accounts and personal funds of organization members will be at risk in a lawsuit.
Incorporating a nonprofit is fairly straightforward. You will need to choose your corporate name and complete the incorporation process with your state with a business services company. You can then apply for an IRS and state tax exemption before drafting your bylaws and appointing directors. This process is worthwhile in the above situations, and many more, to enjoy liability protection and tax-exempt status.