This guide explains how and why nonprofits are started and some of the rules and regulations that they are expected to abide by.
Starting a Nonprofit Organization
Have you ever thought about starting your own nonprofit organization? With the help of a qualified attorney you can make this idea a reality and ensure that you are in compliance with all the laws of the State of Minnesota and the IRS. The nonprofit sector in the United States provides over 11 million jobs and makes up 10% of all employment. Nonprofits range from schools and universities to hospitals, grassroots organizations, and cultural institutions.
What distinguishes a nonprofit from a business is that the revenue generated is put back into the organization and not distributed among shareholders. In the State of Minnesota a nonprofit must file with the Secretary of State and abide by certain criteria.
The most common advantage cited for nonprofits are their tax exempt status. If a nonprofit obtains 501(c)(3) status its donors can deduct contributions from their overall tax liability, thereby encouraging giving.
You can establish a nonprofit for practically any purpose under the sun, including religious, charitable, scientific, literary, or educational. My firm can help you with all the steps necessary for establishing or maintaining a nonprofit, including assisting in creating the articles of incorporation, ensuring that the activity of the nonprofit is within IRS guidelines, and lending other legal advice regarding the day to day activities of your nonprofit.
What is a 501(c)(3) nonprofit?
Q: What is a 501(c)(3) nonprofit organization?
A: Simply put, a 501(c)(3) is a nonprofit organization in which donors' contributions are tax deductible. This is the most attractive form of nonprofit organizations as it encourages giving by important benefactors. It does, however, come with certain restrictions. For example, a 501(c)(3) cant not endorse any particular individual or political party for office. It CAN lobby on certain issues of political importance, but only if this does not entail a substantial amount of its resources and time. All 501(c)(3)s are nonprofit organizations, but not all nonprofit organizations are 501(c)(3)s.
A 501(c)(3) is also bound by the same essential criteria as all other nonprofits, namely, the revenue can not be distributed among shareholders but must be put back into the organization.
In order to obtain 501(c)(3) status it is necessary to file with the IRS and be recognized as such. If you are concerned about whether certain activity is allowed as a 501(c)(3) it is important to consult a qualified lawyer for advice. My firm is knowledgeable in the area of nonprofit law and can assist in forming a 501(c)(3) or in advising whether your 501(c)(3) is in compliance with applicable tax law.
Can a Nonprofit make a "profit"?
Q: Can a Nonprofit Organization make a "profit"?
A: Yes. A nonprofit organization, despite its name, is not prohibited from earning revenue above the cost of its expenses. The difference between a nonprofit and a business is that a nonprofit must not distribute the surplus revenue to shareholders, nor are the employees of the nonprofit allowed to make more than whatever is "reasonable" compensation for their work.
A good example for this is a hospital, which is often times a nonprofit organization, but which charges fees for medical services, has a staff which it employs and pays, and strives to make a "profit" each year so that it can be reinvested back into the nonprofit. The examples could go on. Indeed, sometimes the only way for a nonprofit to remain in existence is to earn a "profit" each year.
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