A not-for-profit corporation is a company has a public purpose and all income and profit is permanently dedicated to that purpose and may not be shared with private individuals. Not-for-profit corporation cannot have shareholders or investors. It is managed by a board of directors, trustees, and/or employees. Such type of entity is best suited for a businesses organized for charitable, educational, artistic, scientific or religious purpose.
Pros:
• Corporation does not pay income tax
• Donations made to a 501(c)(3) not-for-profit corporation are tax deductible for the donor
• Tax deductible fringe benefits, including health insurance and retirement plans
• Sales and property tax exemptions may be available
• Managers liability for business obligations is limited – lawsuits are brought against the company rather than the individuals
Cons:
• Any profit that a not-for-profit corporation earns on the products/services it provides or on the investments it makes must be applied to the operation of the corporation and cannot be distributed to its members, officers, and directors.
• Expensive and difficult to create – requires many additional filing with IRS to obtain a tax exempt status
• Administrative duties may be complex to set up, operate and dismantle the company
• No shareholders. Corporate assets are deemed to be owned by the public (upon dissolution of corporation, its property must be transferred to another not-for-profit corporation or to the state).
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