Nonprofit Organization
Starting a nonprofit organization is noble deed. Provide a service, will have a clear goal to benefit the public interest, for a religious, educational, literacy, science or charitable purpose. The organization can begin gathering friends, relatives, CO – workers within informal meetings, to formulate the membership. Articles of Incorporation acknowledge, name of the entity, purpose of the organization, its location, liability, and dissolution requirements of the corporation. Any changes to the articles of incorporation, are permissible if the organization changes name or address, changes the organization goals, changes the provisions for the disposition of assets upon dissolution, and changes the way the board members are elected. A board member should be qualified with some experience, and knowledgeable, that can best contribute to the organization, and be able to provide the necessary time for the job description. According to ‘501 c3″ the Internal Revenue Code, the criteria that an organization is nonprofit, will have a Federal tax exempt status. There is no need to file any Federal Tax return, unless the organization has collected $25,000 in gross receipts. Nonprofit corporation is limited, by Internal Revenue Service, how profits are spend, and limited in engaging in profit — making activities that are unrelated to its recognized nonprofit purpose. Internal Revenue Service publication 526 lists the types of organizations, which donations are deductible. However, individual State laws regarding nonprofit tax exemption status, is regulated by their own regulations. Contacting the Secretary of State office, for obtaining information regarding regulations for nonprofit organization or State website. Also, requesting forms to declare article of incorporation, pay any fees, filing costs, and confirm that organization name is not previously taken. Within the organization, a set of By – Laws are stipulated, regarding the provisions for the organization for forming the board of directors, qualification, length of term, and guideline how to operate the organization. Non – Profit organization does not issue shares, like a public traded company and no dividends are distributed. Volunteers provide most of the work, for a non — profit organization. Money is collected through fundraising events, donations and grants (no guarantee the grant will be renewed the following year). When a nonprofit organization begins operations, there may not be sufficient funds to pay for basic services or needs. This can be resolved, by sharing basic office space, administrative tasks, fundraising, and other work with another organization.
Advantages and disadvantages operating a nonprofit organization: Advantages include limited liability from creditors. Creditors for a nonprofit corporation can only pursue the corporate assets to satisfy any debts, but the personal assets of any corporate member, may not be pursued. Tax exempt status from Federal, and most of the time from State taxes. Organization receives a lower postal rate for bulk mail, discounted rates for advertising, lower price for Internet services, offers lower membership rates, and possible job training or work study programs, which are subsidized by the federal government. Disadvantages operating a nonprofit corporation: Articles of Incorporation, By – Laws, and minutes of corporate meetings, must be maintained, and filing for tax exemptions must be done on a timely basis. If the Internal Revenue Services challenges the status of nonprofit organization, then organization would be liable for any penalties and back taxes. Also, if any director or member of the organization conducts any illegal activity, violates articles of incorporation or accepts personal gifts / money, then criminal charges could be pending.
Considerations operating a nonprofit corporation: Each State requires a minimum number of directors. No distribution of financial gains to directors, officers or members. Non – profit corporation have fifteen months from the date of establishing, articles of incorporation to file with the Internal Revenue Service form 1023, for tax exemption, that will become retroactive. Upon dissolution, all corporate assets have to be transferred to another nonprofit organization. Participation in political campaigns for or against any personal running for public office is prohibited. Nonprofit organization may not try to influence or engage in any legislature activities. A volunteer treasurer is necessary keep a record, of all financial transactions, especially when reporting to the Internal Revenue Service and State regulators. Also, write any checks, maintain a budget, provide any monthly financial reports, and provide guidance to the executive director. Bank statements should be send directly to the executive director, to review each transaction that should be accounted. A method of checks and balances is important to prevent any misappropriation of funds. Hiring a nonprofit knowledgeable lawyer, can provide good legal advise especially when filing for articles of incorporation, maintaining tax — exemption, and tax deductibility with the Internal Revenue Service. Contacting local bar association for references.
Internal Revenue Service will send to the organization a determination letter, which is approves the organization as nonprofit entity with tax — exempt status. Also, indicates under which section of the Internal Revenue Code, the organization is qualified. If the organization does not comply, in manner described in the application, then tax — exempt status would be revoked.
Every nonprofit corporation, needs to periodically evaluate their performance, to ensure the goals of the organization, is being achieved, and all internal operations are performed diligently. Sometimes hiring an outside consultant maybe necessary to achieve better results. During process of evaluation additional expense maybe necessary, to pay for travel and lodging to multiple locations. Exchanging some members of the organization with another non — profit organization, will gain knowledge, how operate more efficiently. Organizations such as SCORE (Service Corporation for Retired Executives) may provide, expertise advise. Also, can enhance, better management skills, from executives and entrepreneurs. Organization that are just starting, may need the help of a fiscal sponsor, which an existing nonprofit organization, which may provide sufficient financial requirements, and management skills. Upon a mutual agreement in writing, should include any cost to the nonprofit organization, and information disclosed when the relationship will be terminated, without any legal ramification.
Internal Revenue Service has been reviewing the compensation approximately 2,000 charitable organizations, including nonprofit hospitals. Hospital executives were the five most highly paid Chief Executive Officers, for nonprofit organization. According to survey in Modern Healthcare publication, in 2003 the medium compensation to a hospital Chief Executive Officer was $625,000. Congress is expected to continue hearings into the tax — exempt status of hospitals, and charities. The concern is whether the salaries of these executives are warranted against rising hospital costs.
“The National Council of Nonprofit Association [NCNA – 1030 15th Street, North West Suite 870 Washington, D.C. 20005 – 1525 – Telephone: 202 – 962 – 0322) is the network of state and regional nonprofit associations, serving over 22,000 members in 46 states and the District of Columbia.” The association provides small and mid — sized nonprofit organizations help management, lead more effectively, collaborate and exchange solutions. Also, saving money through group buying opportunities, and achieve greater impact on the non — profit organizations that serve their community.
