When it comes to keeping your nonprofit's tax exempt status, knowing how to incorporate and operate your organization is crucial. While similar to the processes involved in creating and running a regular corporation, there are key differences which, if not maintained, can strip your organization of its non-profit status. Here you'll find information about the special rules and requirements that apply to nonprofit corporations.
Comply with Corporate Formalities
Just like a regular corporation, a nonprofit corporation must have a board of directors in charge of important policy decisions. In addition, there are officers responsible for making decisions regarding the day-to-day running of the corporation. Lastly, depending on the size of the nonprofit corporation, there will be employees that carry out the work.
However, unlike regular corporations, nonprofit corporations do not have shareholders or owners. Because no one person or group owns a nonprofit, it cannot be "sold." Instead, if the directors of a nonprofit corporation decide that the corporation must be dissolved, they must make arrangements for all of the nonprofit's assets to be distributed.
Nonprofit corporations can choose to have members with voting rights, although many decide against a membership structure and instead allow their boards to make all decisions. If a nonprofit does have a membership structure, then all of the members participate in major decision making and can, among other things, choose who sits on the board, amend the corporate bylaws, and vote on decisions regarding mergers or dissolutions.
Maintain Corporate Records
Like other corporations, nonprofit corporations must keep detailed and accurate corporate records. If these records are not kept, the limited personal liability status of the directors may be in jeopardy and the organization could lose its tax-exempt status. By definition, good corporate record keeping means maintaining accurate minutes of the meetings of the directors and documenting any important decisions.
After you have all of these records, you should make sure to organize them in an easy-to-manage corporate records book. This book should also contain a copy or the articles of incorporation, bylaws, and tax-exempt status documentation from the Internal Revenue Service (IRS) as well as your state's tax agency.
Know Your Nonprofit's Limitations and Restrictions
Equally as important as maintaining detailed and accurate corporate records, your nonprofit corporation must abide by other rules in order to keep and maintain its tax exempt status, some of which are described below.
Let an Attorney Help You Keep Your Nonprofit's Tax Exempt Status
Running a nonprofit requires some of the same skills and knowledge as running a for-profit corporation, although there are different rules that apply. Failure to comply with these rules could lead to loss of non-profit status, or worse. Speak to a tax attorney today about the benefits and limitations of running your organization as a nonprofit, so you can focus on the mission of your organization.