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Non Profit Incorporation
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NON-PROFIT INCORPORATE: INCORPORATION IS A REGISTRATION AS PER THE REQUIREMENTS OF THE COMPANY LAW IN RESPECTIVE COUNTRIES WHICH IS RECOGNISED LEGALLY AS A SEPARATE EXISTING ENTITY IN THE EYES OF LAW. INCORPORATION SIGNIFIES THAT THE BUSINESS ENTERPRISES IS NOT SOLEPROPRIETORSHIP OR PARTNERSHIP AND IS A SEPARATE LEGAL EXISTENCE OR ENTITY.
WHAT ARE THE LEGAL BENEFITS OF INCORPORATION:
1. PROTECTION OF PERSONAL ASSETS SOLE PROPREITORS OR PARTNERS ARE PERSONALLY AND JOINTLY RESPONSIBLE FOR ALL BUSINESS LIABLITIES 2. TRANSFERABLE OWNERSHIP 3. RETIREMENT FUNDS 4. TAXATION BENEFITS 5. RAISING FUNDS FROM SALE OF STOCK 6. DURABILITY/LIFE 7. CREDIT RATING
STEPS INVOLVED IN INCORPORATION:
1. FINDING A NAME 2. PURPOSE OR OBJECTS 3. PRINCIPAL PLACE OF BUSINESS 4. NUMBER AND TYPE OF SHARES 5. REGISTRATION FEES TO STATE 6. CORPORATE BYLAW
WHAT IS NON-PROFIT INCORPORATION:
A NON-PROFIT CORPORATION IS AN ORGANISATION FORMED AS A CORPORATION FOR PURPOSES OTHER THAN GENERATING A PROFIT AND NO PART OF ORGANISATION; S INCOME IS DISTRIBUTD TO ITS DIRECTORS. A NON-PROFIT CORPORATION CAN BE A SPORTS ASSOCIATION, CHURCH, SCHOOL, CHARITY, LEGAL AID SOCIETY, PROFESSIONAL ASSOCIATION, RESEARCH INSTITUTE, MUSEUM ETC
NON-PROFIT INCORPORATION IS VERY SIMILAR TO CREATING A REGULAR
CORPORATION EXCEPT THAT A NON-PROFIT INCORPORATION MUST TAKE EXTRA STEPS OF APPLYING FOR TAX-EXEMPT STATUS WITH THE STATE IN WHICH IT INCORPORATES AND ALSO WITH THE INTERNAL REVENUE SERVICE (IRS).
NON-PROFIT INCORPORATION INVOLVES THE FOLLOWING STEPS:
1. CHOOSE A NAME THAT IS LEGALLY VALID IN THE RESPECTIVE STATE 2. FILE ARTICLES OF INCORPORATION AND PAY FILING FEE 3. APPLY FOR STATE AND FEDERAL TAX EXEMPTIONS 4. CREATE BYLAWS 5. APPOINT INITIAL BOARD OF DIRECTORS 6. CONDUCT 1ST MEETING OF BOARD OF DIRECTORS 7. APPLY FOR LICENCES/PERMITS AS REQUIRED UNDER THE STATE AND LOCAL MUNICIPALITY REQUIREMENTS.
CORPORATE FILING DIVISION IN SECRETARY OF STATE OFFICE GIVES ON REQUEST A PACKET OR KIT OF SAMPLES OF ARTICLES OF INCORPORATION, STATE LAWS ON NON-PROFIT CORPORATIONS AND INSTRUCTIONS ON HOW TO FIND AN AVAILABLE BUSINESS NAME.
After filing ALL THE REQUIRED DOCUMENTS FOR NON-PROFIT INCORPORATION IN A STATE, IT CAN APPLY FOR FEDERAL NON-PROFIT STATUS TO IRS AS A 501(C) (3) CORPORATION.
FORMS TO BE FILED WITH INTERNAL REVENUE SERVICE (IRS) ARE:
1. IRS FORM 818 USER FEE FOR EXEMPT ORGANISATION DETERMINATION LETTER REQUEST 2. IRS PACKAGE 1023 APPLICATION FOR RECOGNITION OF EXEMPTION
IRS WILL REVIEW THE APPLICATION AND SEND A LETTER APPROVING THE NON-PROFIT STATUS.
BEING FORMED WITH STATE AS A NON-PROFIT CORPORATION DOES NOT AUTOMATICALLY QUALIFY AN ORGANISATION WITH TAX-EXEMPT STATUS.
SOMETIMES IT IS REQUIRED THAT TO APPLY TO STATE FOR TAX-EXEMPT STATUS ALSO. SOME STATES REQUIRE SEPARATE APPLICATION TO GET A STATE TAX EXEMPTION.
WHAT STEPS NEED TO BE TAKEN TO FORM A NON-PROFIT INCORPORATION:
1. FILE NON-PROFIT ARTICLES OF INCORPORATION WITH PROPER STATE AGENCY IT IS TO BE ENSURED THAT THE ARTICLES CONTAIN REQUIRED CLAUSES TO ENSURE THAT THE NON-PROFIT OBJECTS QUALIFY FOR TAX-EXEMPT STATUS. 2. ADDITIONALLY THE NON-PROFIT CORPORATION MUST COMPLY WITH CORPORATE FORMALITIES AND HOLD ANNUAL MEETINGS OF DIRECTORS AND ITS MEMBERS. BYLAWS MUST ALSO BE ADOPTED.
WHAT BUSINESS PURPOSES ARE VALID FOR NON-PROFIT AS A TAX EXEMPT STATUS
TO QUALIFY FOR FEDERAL TAX EXEMPT STATUS UNDER 501(C)(3) OF INTERNAL REVENUE CODE, NON-PROFIT MUST BE ORGANISED AND OPERATED FOR RELIGIOUS, EDUCATIONAL, CHARITABLE, RESEARCH, SPORTS ETC. BUSINESS PURPOSE OF NON-PROFIT INCORPORATIONS MUST BE LISTED IN THE ARTICLES OF INCORPORATION.
MOST STATES REQUIRE NON-PROFIT INCORPORATIONS TO HAVE A MINIMUM OF 1 TO 3 DIRECTORS.
ADVANTAGES OF FORMING NON-PROFIT INCORPORATIONS:
1. NON-PROFITS INCORPORATIONS RECEIVE THE SAME LIMITED LIABILITY PROTECTION AS DO FOR PROFIT CORPORATIONS. THAT IS DIRECTORS, OFFICERS, TRUSTEES AND MEMBERS ARE NOT PERSONALLY LIABLE FOR LIABLITIES AND DEBTS OF NON-PROFIT CORPORATIONS.
2. LIFE OF THE NON-PROFIT CORPORATIONS ARE UNLIMITED
3. RETIREMENT FUNDS AND QUALIFIED RETIREMENT PLANS (LIKE 401K) MAY BE SET MORE EASILY WITH A NON-PROFIT CORPORATION.
4. INCORPORATING QUALIFY FOR INCOME TAX EXEMPTIONS
5. CAN ACCEPT DONATIONS
6. BECOME ELIGIBLE FOR GRANT MONEY
7. ALSO DONORS CAN DEDUCT GIFTS ON THEIR FEDERAL AND STATE INCOME TAX ONCE THE CORPORATION IS INCORPORATED AND GETS TAX-EXEMPT STATUS.
DISADVANTAGES OF FORMING NON-PROFIT INCORPORATIONS:
1. INCREASED PAPERWORK
NON-PROFIT CORPORATIONS CANNOT BE USED TO GENERATE PROFITS FOR OWNERS AND NON-PROFITS BUSINESS PURPOSE MUST CONFORM TO THE IRS REGULATIONS.
IN INDIAN CONTEXT THESE COMPANIES ARE KNOWN AS SECTION 25 COMPANIES UNDER INDIAN COMPANIES ACT. BECAUSE THESE COMPANIES ARE INCORPORATED AS PER PROCEDURES LAID DOWN IN SECTION 25. THESE NON PROFIT INCORPORATIONS NEED NOT USE THE WORD LIMITED IN THEIR NAME. EXAMPLES OF SUCH NON-PROFIT CORPORATIONS ARE BOARD OF CONTROL OF CRICKET IN INDIA (BCCI), CHARITABLE ORGANISATIONS ETC. THESE NON-PROFIT CORPORATIONS ARE REQUIRED FILE AUDITED ANNUAL RETURNS WITH INCOME TAX AUTHORITIES AND THEIR INCOME SHOULD BE UTILISED ONLY FOR THE PURPOSES FOR WHICH THEY ARE FORMED AND NOT FOR OTHER PURPOSES.
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