WHAT IS A NON-PROFIT CORPORATION?
Typically, a company which is formed and operated for the benefit of
religious, social, scientific research, artistic, educational, or environmental
purposes can be formed as a Non-Profit corporation. Examples are Churches,
Synagogues and other religious organizations, AIDS research and support groups,
Homeless support agencies, Ballet and Dance theaters and groups, Schools and
after school programs, Animal adoption agencies, and organizations that work to
preserve nature. Additionally, there are groups such as Fraternities and
Sororities, Civic groups and Business membership organizations like business
leagues, Chamber of Commerce, fraternal orders of Police, Firemen, Condo and
homeowners associations, War Veterans associations.
The idea of a Non-Profit company is to provide a way for an organization to
provide needed support to a specific group, in a beneficial, benevolent manner,
or a humanitarian effort, with the "reward" being the organization
would not have to pay any income tax, since there should not be any taxable
profit or net income. The company works to provide a benefit to the public, or
to a group of individuals, or to the environment. The key factor in Non-Profit
company operation is that they are supposed to operate without earning a profit
that benefits the management or workers, and will not result in a gain for any
private person connected with the organization's operations. Revenues received
would be used to pay operating expenses and to give to the recipient, or to pay
for services rendered to the recipient, or to purchase and then donate items to
needy people.
This does not mean that the people who operate a Non-Profit company must
volunteer their time. Salaries can be earned. Workers can be paid for their time
and services, as long as salaries are within reason.
There are three general categories of Non-Profit corporations which can be
filed. The specific wording of the Articles of Incorporation that are filed with
the government to create the corporation must be modified by state laws, to
conform to one of the three types:
2. Public Benefit Non-Profit corporations, or
3. Mutual Benefit Non-Profit corporations You must decide in advance which type of company category your organization's
purpose will fit into.
Simply registering your organization as a Non-Profit corporation does not
automatically give you exemption from payment of US Federal or State of
California Income tax. Application must be made to, and approval obtained from,
the state and federal government, or the company must pay income tax. California
goes a step further to clarify this, and states that Non-Profit corporations
must automatically pay income tax until an exemption is granted. Moreover, rules
regarding the management and operations of Non-Profit companies must be
followed, or the exempt status can be revoked.
Formation of a company in California as a Non-Profit organization is not
difficult. However, the approval as an exempt organization is more involved, and
as indicated, an application to both the California government and the US
Federal government is necessary for recognition as truly exempt from paying
income tax.
In California, after a corporation has been filed, copies of the Articles of
Incorporation, an Exemption Application along with all requested documentation
and financial details, and an application fee of $25.00 must be submitted to the
government for review. This process takes an estimated 90 days from the date of
submission.
THE PURPOSE:
TYPES OF NON-PROFIT CORPORATIONS:
1. Religious Non-Profit corporations
APPROVAL AS A NON-TAXED COMPANY: