A non-profit is an organization in which no owner, stockholder or trustee shares in profits and losses, and which exists not to earn revenue but to promote a mission that enhances the public welfare. These organizations are often eligible for tax-exempt status and some, but not all, can receive tax deductible contributions.
“Non-profit” doesn’t actually mean that the entity can’t make a profit. A non-profit corporation is permitted take in more many than it spends, as long as the non-profit is organized and operating for a non-profit purpose. Tax-free profits may be used for the benefit of the organization or for operating expenses (including officer, director and employee salaries). However, profits, in the form of dividends, cannot be distributed to its officers, directors or employees.
No. You may not receive profit distributions. Salary payments, however, are permissible.
Primary differences include:
- A for-profit organization is typically established for the financial benefit of its owners and/or shareholders. The goal is profit and the business pays taxes on profits.
- A non-profit organization is typically established for the benefit the community or public. Non-profits don’t pay taxes and can’t use funds for anything other than the mission of the non-profit.
- When a for-profit organization goes out of business, its assets are typically liquidated and the proceeds are distributed to its shareholders or owners.
- When a non-profit goes out of business, its remaining assets must typically be given to another non-profit organization.
No. Non-profit corporations cannot issue shares.
The majority of states require non-profit corporations to have a minimum of three directors, however CA, CO, DE, IA, KS, MI, MS, NH, OK, OR, PA, SC, VA, WA and WV require a minimum of only one director. In LA, MA, MN and VA, if the non-profit has less than three members, less than three directors are permitted.
One of the requirements to receive 501(c)(3) tax exemption is when dissolving the corporation, any remaining assets after the corporation’s debts and liabilities are paid, cannot go to the members of the former corporation. They must go to another tax-exempt non-profit instead.
No. A non-profit cannot be sold.