Non Profit Corporation Set-Up
There are a lot of reasons to set up a Non Profit Corporation. Among them are the tax advantages, the protection from lawsuits, and to raise money for worthwhile causes. Every state has different laws regarding non profits, but the Federal Government, the 500 pound Gorilla has just one set of rules, so that is what we will deal with primarily.
The Feds grant a tax deduction to people who give to non-profits and you would be amazed at the trillion dollar industry that non-profits are for just this very reason. Much of it is questionable, but unless you are flagrant, stupid or extremely careless the government will cut you a lot of slack.
There are a some hard and fast considerations, here are some of them:
1. Never ever divert in any way shape or form anything of value FROM a non-profit to anything that could be construed as a profit company. Resist the temptation to have the NP (non-profit) lend to, or do any favor of any sort for any P (profit). This is very serious. Ps can do anything for NPs but NPs can never ever do anything of any sort for a P. Money and services can flow one way, but never the other way. You would be surprised how many people, including Congressmen, go to jail every year for violating this extremely simple rule.
2. If you are a church you don’t have to even apply for a tax deductable status from the IRS, you are grandfathered in automatically. You still must obey the law, but you don’t have to apply for your tax deductability. Even so, sooner or later most churche do apply pro forma.
3. You may apply to a state of your choice for a corporate charter that comes in a few flavors, such as LLC, LP and so forth. If you do the paper helps the IRS to approve you, and for various other reasons it is best to create a corporation of some sort for your NP.
4. Choose a name that is as general as possible so you have more flexibility in what you actually do. Don’t worry you can use other names that are more specific in most situations.
5. The articles of incorporation are pretty boiler plate, but the by laws that you also must have are things you must create. Try to pick a set up that are well sculpted and change them to suit your case. Don’t even think of doing them from scratch by yourself, and a lawyer will charge a lot and not give you what you really need. What you need is a set of bylaws that concentrate control as narrowly as possible, so you can maintain control and not be tossed out of your own organization by an ambitious board. It happens all the time. So provide for just 3 directors so you can keep better control. Get a set of ideal bylaws that are as wide as possible on what you can do. Basically, you want to be able to do religious things, educational things, and charitable things at a minimum.You never want to be accused of doing something your bylaws don’t allow you to do, or not doing something they require you to do.
6. The IRS uses a number system to categorize ALL NPs. 501c3s are the most common and cover all religious, charitable and educational endeavors. A museum and a college are educational, and the Red Cross is a charitable, and the Catholic Church is a religious. c4s are lobbying groups like Right to Work or NRA and businesses can take what they give them as an expense, and all different rules apply to them. There are also other number things, but you don’t need to know about them right now. You can download the application from the IRS and have an idea of what they ask. It may take a few months to get approved. If most of your money doesn’t come from donations after a few years the IRS will recategorize you NP as a Foundation and different rules will apply to it, so you want to push donations to avoid this.
7. NPs must file yearly tax returns, and again you can download the forms and have some idea of what they require in terms of reporting. Most tax preparers know how to file these forms. Once you put money into an NP you can’t just turn around and take it out, as it was put in tax free and must be used for an NP purpose.
8. If you use a lawyer he will file the state papers and give you what you need to send into the IRS, or maybe he will send the stuff to the IRS for you, but he will charge you for all that. He will also file the yearly reports to the state and pay the yearly fees.
Well, there are a lot of other things, but this will get you started off on the right footing.
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