Nonprofit 101: What Is a Nonprofit?

Before you take the dive into starting your own nonprofit, there are some important things you need to understand. The world of nonprofits is quite different from that of a typical for-profit business. As the experts on all things nonprofit, we’re here to help guide you through the process and make sure you are on the path to success. If you are thinking about starting a nonprofit, it’s a good idea to first understand what it means to be a nonprofit. Keep reading to find out more about nonprofits.

A nonprofit by definition is an organization that is created to advance a particular cause – but not for the purpose of making a profit. Nonprofit organizations range from large charities and foundations to small grassroots organizations that benefit a school, church, or community. 

A nonprofit isn’t owned by any one individual but instead is run collectively by a board of directors. Also, even though a nonprofit is allowed to sell goods and services and make a profit, if there is a profit at the end of the year, the extra money does not go into the founder’s pockets. Instead, it is reinvested in the nonprofit to continue to further their charitable purpose. 

What Is the Difference Between a Nonprofit and a For-Profit?

Now that we have a working definition for a “nonprofit”, let’s compare it to a “for-profit” business. A for-profit business is generally created to sell a good or service with the goal of making a profit for the owners or shareholders of the business.

When you think of a for-profit company, think of most of the goods and services that you use every day. Behind those products and services are companies that are constantly innovating with the purpose of reducing their costs, offering more products, and raising their prices, all with the goal of making more profit for their owners and shareholders.

For-profit businesses are owned by individuals. This means that if there is money left over at the end of the year, this money is paid out to the individuals that own the business and can be deposited into their personal bank accounts. If they ever decide to close the business, they can sell everything and keep the proceeds for themselves after any bills and debts have been paid.

What Is a 501c3 Nonprofit?

Now that we know what a nonprofit is in general, let’s talk about what a 501c3 nonprofit is and how it can benefit you. A 501c3 nonprofit is a special type of nonprofit that is governed by Section 501c3 of the Internal Revenue Code and has been approved by the IRS as a charitable organization.

The most important thing for you to know is that Section 501c3 of the Internal Revenue Code shares very clear guidelines that a nonprofit must follow to be approved by the IRS as a “tax-exempt” charitable organization. Once approved by the IRS, the nonprofit no longer has to pay state or federal taxes on any donations received. 

Nonprofits that have achieved 501c3 tax-exempt status must follow a list of guidelines that are designed to make sure that the nonprofit is created for a charitable, educational, scientific, or religious purpose as defined by the IRS Code.

The most important thing you need to know is that 501c3 nonprofits are nonprofit organizations that do not have to pay federal or state taxes on the donation they receive when they are operating in compliance with Section 501c3 of the IRS Code.

There are a lot of intricacies you need to know about to start your 501c3 nonprofit, but Chisholm Law Firm is here to help. If you’re ready to start your own nonprofit, call us today to schedule your free consultation.



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