There are several benefits of forming a nonprofit organization in California. For example, most nonprofits help improve the quality of people’s lives by providing them with food, shelter, and educational tools to succeed in life. If you are interested in forming a nonprofit in California, read on to learn more about the many benefits of a nonprofit organization and how A People’s Choice can help you get started.
Nonprofit Organization Requirements
In order to form a tax exempt nonprofit in California, you must complete the following steps:
- Establish a Corporate Name
- File Articles of Incorporation
- Prepare and Approve Bylaws
- Apply for an EIN
- File A Statement of Information
- Prepare State and Federal Tax Exemption Applications
Detailed instructions on how to complete the above steps can be found on our website. Preparing state and federal tax exemption applications is a lengthy process. Contact us to find out how we can help you complete both applications.
Advantages of Nonprofit Organizations
There are several advantages of operating a nonprofit organization. One of the major benefits of a nonprofit organization is that it’s eligible for an income tax exemption. If your nonprofit organization will make money from its business activities becoming a nonprofit may be in your best interest. Under federal and state income tax law, so long as the money your nonprofit generates is related to your tax exempt purpose applicable to your 501(c)(3) status, your nonprofit will not be required to pay any income taxes.
Another benefit of a nonprofit organization is that it can apply for public and private grants. This is great because many foundations and government agencies limit their grants to tax exempt organizations. Foundations and other donors will be able to deduct its gifts to your nonprofit on their federal and state income tax returns.
Structuring a nonprofit as a corporation protects its directors, officers, and members from personal liability for the corporation’s debts and liabilities. This means that creditors and courts are limited to the assets of the nonprofit organization. However, a nonprofit officer or employee cannot use the corporate status to shield its illegal or irresponsible acts. The corporate veil can be pierced in certain circumstances of wrongdoing and the officer or employee can be personally sued.
The most important benefit of a nonprofit is that it helps people. From finding a cure for breast cancer, to providing affordable housing to struggling individuals, most nonprofits help people throughout California. When a nonprofit improves the lives of others, a legacy is made.
Nonprofit vs Profit
Nonprofit and for profit businesses have much in common, but there are significant differences between the two. As the name implies, a nonprofit entity does not generate a profit from its business activities while a for profit business does. Nonprofits are usually established to help the “greater good” of society. It cannot use its business funds for any other purpose outside of its designated mission (or it will be subject to federal and state taxes). Nonprofits rely heavily on donations to operate and must follow strict operational standards to keep up its tax-exempt status. Nonprofits are not allowed to distribute corporate income to shareholders; and, when it goes out of business, it must give its remaining assets to another nonprofit.
For profit organizations offer products and services that are valued in the marketplace. Profits are distributed among owners, shareholders, and employees. For profit organizations are taxed in many ways. Not only is the company taxed, but shareholders, owners, and employees must pay income taxes as well. When a for profit organization goes out of business, its assets can be liquidated and distributed among its owners or shareholders.
As mentioned above, there are striking differences between nonprofit vs profit organizations. If you are looking to form either one in California, or want to learn more about the benefits of a nonprofit organization, contact A People’s Choice. We offer lots of information materials as well as help to prepare the required legal documents and filing them with the Secretary of State.