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What are the pros and cons of a non profit corp. My husband…

What are the pros and...
What are the pros and cons of a non profit corp. My husband and I own a mobility business and moved to another state. We are profit right now, but thinking to change to non profit since we want to do donations? Thanks
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3/13/2018
KLAW
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Hello and welcome to Just Answer. No attorney-client relationship or privilege is formed by speaking to an expert on this site, the answers are for general information. By continuing, you confirm that you understand and agree to these terms.

The main advantage is that you will have a tax-exempt status for your nonprofit organization, and you will not have to pay federal taxes on the net income. In that way, the earnings can be cycled back into the organization to improve it.

There are several other advantages. Tax exemption/deduction: Organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible for federal exemption from payment of corporate income tax. Once exempt from this tax, the nonprofit will usually be exempt from similar state and local taxes. If an organization has obtained 501(c)(3) tax exempt status, an individual's or company’s charitable contributions to this entity are tax-deductible.

As you stated, you are eligible for public and private grants. As a nonprofit organizations you are allowed to solicit charitable donations from the public. Many foundations and government agencies limit their grants to public charities.

Another advantage is that a nonprofit organization exists as a legal entity in its own right and separately from you as the founder. Incorporation puts the nonprofit's mission and structure above the personal interests of individuals associated with it.

There is also limited liability for you. Under the law, creditors and courts are limited to the assets of the nonprofit organization. The founders, directors, members, and employees are not personally liable for the nonprofit’s debts. There are exceptions. A person cannot use the corporation to shield illegal or irresponsible acts on his/her part. Also, directors have a fiduciary responsibility; if they do not perform their jobs in the nonprofit's best interests, and the nonprofit is harmed, they can be held liable.

That said, there are several disadvantages.

First is the cost. Creating and setting up a nonprofit organization takes time, effort, and money. Because a nonprofit organization is a legal entity under federal, state, and local laws, the use of an attorney, accountant, or other professional are usually necessary. Aside from legal or other consultant fees, applying for Federal tax exemption can cost $275-$850 or more, in addition to state fees for incorporation.

As a non profit there are numerous record keeping requirements. As an exempt corporation, you as a nonprofit must keep detailed records and submit annual filings to the state and IRS by stated deadlines in order to keep its active and exempt status.

You will also have to give up some control because personal control is limited. A nonprofit organization is subject to laws and regulations, including its own articles of incorporation and bylaws. In most states, a nonprofit is required to have several directors, who in turn are the only people allowed to elect or appoint the officers who determine policy.

Finally, a nonprofit is dedicated to the public interest; therefore, its finances are open to public inspection. The public may obtain copies of a nonprofit organization’s state and Federal filings to learn about salaries and other expenditures.

I hope this helps. Please let me know if you have more questions.

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