Most individuals are under the impression that non-profit corporations cannot earn a profit. This, however, is untrue. In order to survive, nonprofit corporations must ensure that revenues exceed expenses. The term non-profit is used to signify that the sole purpose of the entity is not profit generation. Instead, non-profits pursue public benefit purposes which are recognized under state and federal law.
Non-profits are characterized by the following:
A mission to engage in activities whose goal is not primarily profit driven. No person owns shares of the organization or its property interests. The non-profit corporation’s income and profits are not distributed to any owners, but are instead recycled back into the non-profit corporation’s public benefit mission and activities.
Non-profit corporations are, in a sense, owned by the public. They do not belong to one particular person and are not controlled by a private person.
Non-profit corporation assets are irrevocably dedicated to the organization’s charitable, educational, literary, scientific, or religious purposes.
Non-profit corporation cash, equipment or other property cannot be used or given for anyone’s private benefit, without compensation to the non-profit corporation, for fair market value.
Non-profit corporation property must be dedicated to tax exempt purposes during its existence and after dissolution. When a non-profit corporation dissolves, and liabilities are satisfied, any remaining assets must go to another non-profit corporation, not to the members of the non-profit corporation or any other private parties.
Non-profit corporations are controlled by a governing board of directors or trustees, which collectively act as a group, not individually. The board is responsible for ensuring the non-profit corporation fulfills its purpose.
Board members cannot be guaranteed permanent tenure. If necessary board members can be terminated.
No one person, including the non-profit corporation founder, can control a non-profit. In California, and other states, rules exist governing non-profit directors’ pay. Board members are often non compensated, except for things like travel expenses related to the non-profit corporation.
Non-profit corporations have public accountability and are required to file federal and state annual information returns. Non-profit corporations must file IRS Form 990, which includes information about finances, including the salaries of the 5 highest paid non-officer employees. IRS Form 990 must be publicly available. The majority of non-profits have them available at their headquarters or online.
Non-profits are also accountable to the Attorney General of the state of incorporation. The State Attorney General’s Office has the authority to ensure the non-profit corporation complies with the law.