Nonprofit Corporation
A corporation organized for a charitable, educational, religious, literary, or scientific purpose. Profits are not distributed to owners. Can apply for tax-exempt status under section 501(c)(3), allowing donations to be tax-deductible.
Ownership
No owners in the traditional sense. Governed by a board of directors. Officers manage day-to-day operations. No one 'owns' a nonprofit, assets are dedicated to the mission.
Pass-Through Taxation
No (entity-level tax)
State Filing Required
Yes
Self-Employment Tax
No
Strong. Directors, officers, and members are generally protected from personal liability for nonprofit debts, similar to a for-profit corporation.
If granted 501(c)(3) status, the nonprofit pays no federal income tax on income related to its exempt purpose. Unrelated business income may be taxable (UBIT). Donations may be tax-deductible for donors.
Self-Employment Tax
No. Employees pay standard FICA payroll tax through W-2 wages.
How to Form
File nonprofit Articles of Incorporation with the state, adopt bylaws, hold initial board meeting, then apply to the IRS for 501(c)(3) recognition using Form 1023 (or Form 1023-EZ for smaller orgs). State charitable solicitation registration may also be required.
Ongoing Compliance
File Form 990 (or 990-EZ, 990-N) annually with the IRS. Maintain state nonprofit status, register for charitable solicitation in each state where you fundraise. Keep detailed records of all activities and finances.
- Tax-exempt status (no federal income tax on mission-related income)
- Donations are tax-deductible for donors (major fundraising advantage)
- Eligible for government and foundation grants
- Property tax and sales tax exemptions in many states
- Limited liability for directors and officers
- Complex and expensive to form (Form 1023 is detailed)
- Strict operational restrictions (must serve the public, not private interests)
- Annual Form 990 filing is detailed and public
- No profit distribution to founders or board
- Assets are permanently dedicated to the mission if the nonprofit dissolves
Charitable organizations, religious institutions, schools, scientific research organizations, and any group whose primary purpose is to serve the public rather than make money for owners.
- •Form 1023 (Application for Recognition of Exemption)
- •Form 990 (Annual Return)
- •Form 941 (Payroll)
See our Tax Forms reference for details on each form.