How the Government Determines is a Corporation is a Nonprofit
Hi my name is Jonathan Barlow. I’m an attorney here at Clear Council Law Group. I often have business clients ask me, “What makes a corporation a not for profit corporation or nonprofit corporation?” The short answer to that is that you elect to be treated as a nonprofit corporation when you create the corporation with the state. The longer answer to that question is this: what makes a not for profit is simply as it says in it’s name. You operate the business without the intent to generate profit that is paid out to the owners of the business. In other words, if the business does make profit, that profit has to stay within the business. It can’t be passed out as distributions to the owners of the business. The owners are not profiting on the business of the corporation.
Now, a lot of people use not for profit corporations or nonprofit corporations in connection with a charitable entity or a charitable organization under the federal tax laws. These are sometimes called 501CS organizations. They are usually created for a charitable purpose. You create the not for profit corporation at the state level. You then obtain the 501CS status from the IRS. Together you’re able to operate a charitable entity. That’s basically the nuts and bolts of how you become a not for profit corporation and how that could be an advantage to people in that situation. If you have any questions about not for profit corporations feel free to give me a call here at Clear Council Law Group and I’ll do my best to answer those questions for you.