Our Clients Ask Us: Non-profit Corporation Qualification

Q: How do I know if my organization qualifies as a nonprofit corporation?

A: A nonprofit corporation is a domestic or foreign corporation that is not formed for the pecuniary gain or profit of its members. Similarly, its net earnings or any part of them is not distributable to, its members, directors, officers, or other private persons. However, the payment of reasonable compensation for services rendered and the distribution of assets on dissolution are permitted.

In a corporation all of whose members are nonprofit corporations, distribution to members does not deprive it of the status of a nonprofit corporation.

If your organization meets these qualifications you may wish to obtain an exemption from federal and state taxes that might otherwise be imposed upon the income it receives. In order to do so, you must follow the specific guidelines set forth in Section 501(c) of the Internal Revenue Code of 1986.

If your organization is a nonprofit corporation that qualifies as a charitable, religious, scientific, literary or educational organization under Section 501(c)(3), it may also receive contributions that are tax-deductible to its donors.

Structuring your organization as a nonprofit corporation protects its directors, officers and members from personal liability for the corporation’s debts and liabilities. But remember, its directors and officers will remain personally liable for their own negligence in carrying out their duties to the organization.

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