New Business Setup
Welcome Note
Types of Business Entities
Separate Entity Concept
Corporation
Shares & Stock
Board of Directors
Registered Agent
Incorporator

SERVICES

Privacy Statement
DISCLAIMER
HOME

Back to Business Setup Page

Nonprofit Organizations

Introduction: Non-profit organizations play a major role in all nations. Non-profit organizations do contribute in several areas of society and economy without any profit motto.

In modern days economy is handled by State and Capitalists (Business community). At some point they work together while at other they compete with each other.

State/Government though itself is a non-profit concept, but still they work under strict governmental procedure, constitution and budget with popular consent and vote. On the other side profitable entities (capitalists/business people) work under profit motto. They will put efforts on the projects depending on profitability.

So there is a big gap remained uncovered by State and Capitalists. Such gap is bridged by non-profitable organizations. Keeping in view the important role and need of nonprofit organizations, such organizations are some time supported & sponsored by State and Federal Agencies while other work by themselves. Some organizations are supported by business communities and corporations.

Non-profit organizations keep looking for the areas of social welfare that is not fully attended, and they come up to serve in these areas. In other way you can say that person or group of person with dedication to help others, improve other lives organize themselves as a nonprofit corporation and contribute their efforts.

A person or group of persons, better to organize themselves in a corporation. Such a corporation will have separate entity and will make free its Directors and Officer from personal liability though some exception may apply, and will work under defined purpose and system. The other benefit of setting up non-profit corporation will be its better recognition and perpetual term, that it can exist for ever, and will not cease its operation even its current directors die or retire.

Good things about a Nonprofit Corporations

Opportunity to serve community, nation and world: A Non-profit organization is known for their social welfare at community, nation and even at international level. List of such famous organization cab be very big. They pick up the areas those are not covered by the State/Government or where State does not have departments or provisions.

Efficient Performance: Usually non-profit organizations are more aggressive and efficient in their performance because usually the experienced and dedicated people join together for the purpose.

Non-Profit Motto: The best thing is that they work not for profit but strictly for services.

Protection of Rights: Non-profit organizations are also organized to protect the interest and rights of its members, and to provide services to its members.

Cooperation: Non-profit organizations are looked up respectfully by the State and General public, and therefore they get maximum cooperation from all sectors.

Experienced Management: Non Profit organizations are formed by interested and experienced group, so they are able to perform professional management activities.

Limitations:

Lack of Performance measurement: Due to lack of profit motto, it is not easy to measure the performance of a nonprofit organization. One can say that a particular nonprofit organization is very successful but in terms of economic achievements and economic contributions, it is hard to measure their contribution specific or in percentage or in dollar amount, due to lack of measurement tool. Usually profit is the major tool to measure the success and contribution that will not be there.

Non-profit organizations are supposed to work not for profit, though some part may involve profitable activities, therefore raising funds are a major issue. A non profit organization has to depend on donations and contributions, those are hard to generate and receive.

Lack of Professional Management: Usually Directors of the board are appointed based on their fund raising capacity, such organization may lack good management for performances.

Misuse of funds: Non-profit organization as they do not work for profit, so they are out of competition world, and therefore, they may not adhere to strict cost control analyzing system, that may result in over spending and misuse of the funds.

Politics: Non-profit organizations have elected board, and people join if not for money at least for dedication, fame and hidden agendas. Due to existing of election process politics may exist in such organizations.

Strict provision of IRS/Governmental Laws: Non-profit organizations are not as free as profitable organization in their agenda, rather they are subject to strict supervision of IRS coding and other laws relating to non-profit organizations.

Types of Functions/Purposes a non-profit organization may setup:

Forming Process:

Promoter (s): Who bring the idea and make initial solicitations, meetings, collecting the facts, making researches and organizing the facts about the venture. Who further consult and explore all aspects of the venture, properly define the venture and make a good assessment of the success of the venture/purpose. Promoter must act with the best interest of the corporation in mind.

Gathering team of interested and experience Directors: Minimum three initial Directors to start with to incorporation as an entity as non profit organizations.

Other information:

A non profit organization will be working under strict by laws and constitution relating with board meetings, meeting records, quorum rules, office terms, election procedure, executive committees, directors’ duties of care, personal responsibilities, implementation decision and record keeping.

Tax Treatment:

Nonprofit organization are exempt from income tax on the income they generate through defined sources of donations and contributions. But this exempt status does not come automatically rather corporation have to attain under separate IRS process. Even this status is attained, a nonprofit organization has to report and pay tax on any business activities that it has done.

An “Exempt” Status again fall into two categories:

Under charity status, donations given to such organizations are tax deductible for donors.

Getting “Exempt and “Charity” status one has to define its purpose strictly under IRS coding supported with defined bylaws and constitution and other supporting information/documentation.

Setting a non-profit organization and getting exempt status is a serious legal issue. We recommend to explore or consult professionals before you go for such venture.