FAQS About Nonprofit Corporations and Charitable Organizations
Non-profit corporations are formed under state law with a subsequent approval by the IRS for a non-profit status. Non-profit corporations are formed and operated like C-corporations except they exist for a charitable or religious purpose and do not pay income taxes on any profits generated from the operation of the company. They may also solicit money and those who contribute may receive a tax write-off from State and federal governments.
Why should we form one?
When there is a charitable purpose for which money will be raised.
How do we form one?
The same way as any other corporation is formed with the state. In addition the IRS must recognize and grant charitable status.
What are the liabilities of one?
The operation of the entity must be for a charitable goal and the company cannot keep accumulated assets for any goal other than to advance the charitable purpose.
How many directors and officers are required to form a corporation?
In California, one person is generally enough to form a corporation. The same person may hold the offices of President, Secretary and Treasurer and may be the only person on the Board of Directors. The officers manage the daily business of the corporation based on the instructions of the Board of Directors. If you have more than one shareholder then you need to have different parties holding different positions unless there are more than three shareholders. With three or more shareholders only three people need to hold a position.
However, for a nonprofit to receive tax-exempt status from the Internal Revenue Service (IRS) it is subject to stricter rules and regulations about who can serve on a Board, and three different people must fill the minimal offices required.