Advantages and Disadvantages of Forming a Non-Profit Organization

Discussion in 'Legal and HR' started by Jacob Hawkins, Jan 21, 2019.

  1. Jacob Hawkins

    Jacob Hawkins
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    Many are considering forming non-profit organizations nowadays just by having an overview of the basic advantages. And, the majority of these people burn out quickly. However, it’s necessary to study comprehensively about the rules/regulations, have a better understanding of what to expect, etc. before you set your foot in the nonprofit world.

    As the name suggests—a non-profit organization is an organization that takes its profit (by selling goods and services, donations, etc.) to further achieve its objectives and missions.

    Read along to learn about the advantages and disadvantages of forming a non-profit organization, which you might have overlooked.

    Advantages of forming a non-profit organization
    Tax exemption- Perhaps the biggest advantage to start a non-profit organization is an exemption from federal tax. Entities that qualify for public charities under the Internal Revenue Code 501(c)(3) can enjoy exemption from corporate income tax. With this, the organization can usually exempt from other local taxes as well. Contact a registered agent for 501c3 application process.

    Limited liability- The creditors and members have limited access to the assets of the non-profit organization. Additionally, the founders, directors, and other members aren’t liable for any debt related to the organization. An individual can’t use the corporation for irresponsible or illegal activities.

    Disadvantages of forming a non-profit organization
    Cost- Starting a non-profit organization isn’t a process that can be completed overnight. It requires time, money, and efforts. However, submitting an application to the IRS can cost up to $800. If you don’t have comprehensive knowledge, you may need to hire a consultant to make sure everything is done correctly.

    No profits- As discussed earlier that shareholders of a non-profit entity aren’t eligible to collect the profits. Also, it’s quite difficult to calculate profits for investors. At the end of the year, the excess funds are transferred back to the organization.
     
  2. stargrit

    stargrit
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    Creating a nonprofit organization takes time, effort, and money. Fees are required to apply for incorporation and tax exemption.The public may obtain copies of a nonprofit organization's state and Federal filings to learn about salaries and other expenditures.
     

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