If you’re serious about joining an early-stage charity, you’ve probably already discussed whether it makes sense for everyone to become a formal corporation or not. There may be some paperwork involved in starting a non-profit, but for many groups, the advantages often exceed the difficulties which influence people like Anshoo Sethi.
Here are five different scenarios where adding to what already existing could be a smart move
Your Association Is Profitable. Due to Its Participation in These Activities Within
If your company can turn a profit from its operations, becoming a non-profit organization could be a great advantage. Your earnings are free from federal income tax as long as they are directly tied to the charitable endeavors of your organization.
Book clubs for underprivileged kids and teens are first created by a small group of enthusiastic individuals as part of A Primer on Better Books and Learning. The group never makes money; all expenses are covered by the individual volunteers. The organization is then approached by a board member of a nearby junior college who offers to hire them to run reading clubs as part of the college’s curriculum. The group has chosen to register as a charity and apply for IRS tax-exempt status since it intends to make money from its educational endeavors.
You Would Like to Apply for a Grant from a Public or Private Foundation
Your organization will struggle to compete for grants and donations from the public and private sectors if it does not have tax-exempt status. While a tax-exempt, nonprofit association can be established as a substitute for a corporation, the requirements to qualify for tax exemption as an association are more stringent since an association must prepare and adopt an extensive set of organizational documents and operational guidelines. Furthermore, a nonprofit organization has a higher chance of receiving a tax exemption from the IRS.
Seeking to Obtain Tax-Deductible Contributions
Donors may deduct contributions from their taxes if your nonprofit business meets the federal and state requirements for tax-exempt status.
You wish to avoid taking personal responsibility for the actions of the group
Being a corporation may give your organization’s members much-needed security in the event that it is ever sued. Even in the event of a lawsuit, nonprofit corporations are shielded from personal accountability for the directors and members within. This guarantees the protection of their funds, assets, and other valuables. With respect to an unincorporated group and to the people like Anshoo Sethi in Chicago, this is not the case.
It’s possible that your advocacy efforts will put you in legal hot water
Despite the fact that nonprofits are only permitted to participate in very limited political advocacy (unless they want to comply with special federal lobbying regulations), advocacy activities occasionally manage to get a nonprofit involved in an undesirable lawsuit. This is true even though NGOs are limited in their ability to engage in political advocacy. If a corporation is formed, its directors and officials may receive additional legal protection and immunity from personal culpability.
It’s critical to consider donations as possible customers
Success in business, whether for profit or nonprofit, depends on fulfilling the demands of your customers. Once you have established something of value, you have a commitment to fulfill your promises. If you want your contributors to be ecstatic about their investment return, it’s a good idea to promise less than you can actually deliver. Make sure your goals are reasonable, and then go above and beyond what your donors anticipate.