question.jpgIn Business Law

What is a nonprofit corporation?

Most states allow for the creation of a nonprofit corporation, which allows charities and similar entities to receive tax-exempt status with state tax agencies and the IRS. Specifically, to qualify for nonprofit corporate status the purpose of the business must be charitable, religious, literary, scientific or educational. These nonprofit corporations are often referred to as 501(c) organizations, because section 501(c) of the Internal Revenue Code is what grants nonprofit corporations their tax-free status.

You should understand that while an investor can take his or her money back from a for-profit corporation, any investment made into a nonprofit corporation is irrevocable - it’s a donation that you cannot get back. In fact, when a nonprofit corporation is dissolved (i.e., shut down), any leftover assets do not go to its owners, but must generally be given to another nonprofit corporation.