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What are the
differences between for profit and nonprofit corporations?
Profit corporations are authorized to issue shares of stock
to shareholders in return for capital investments. Shareholders
receive a return on their investments when dividends are paid
or when assets are distributed after dissolution. Nonprofit
corporations neither issue shares nor pay dividends, no part
of the income may be distributed to its members, directors,
or officers.
Is a nonprofit corporation exempt from taxes?
Nonprofit does not mean tax-exempt. A “tax-exempt
organization” is a unique entity that is usually a nonprofit
organization. However, a nonprofit organization cannot be
exempt from Federal and State income or franchise tax until
the organization applies for an exemption and the IRS and
the state franchise board issues a determination of exemption.
Can one person be the sole director and officer of a nonprofit
corporation?
Most states require three directors to form
a nonprofit. The following states will require less than three
directors if there are less than three members:
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Louisiana |
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Massachusetts |
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Minnesota |
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Virginia |
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The following states require only one director:
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California |
Colorado |
Delaware |
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Michigan |
Mississippi |
New Hampshire |
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Pennsylvania |
South Carolina |
Virginia |
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Kansas |
Oregon |
West Virginia |
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Iowa |
Oklahoma |
Washington |
Can a nonprofit corporation make a profit?
Yes. A nonprofit corporation can take in
more money than it spends. It can use the tax free profits
for its own operating expenses including salaries. What a
nonprofit corporation cannot do is distribute any profits
to officers, directors or employees.
Who has authority to investigate the activities
of a nonprofit corporation?
The Attorney General has statutory authority
to (1) investigate charities that operate as nonprofit corporations,
and (2) inspect the books and records of all corporations,
including nonprofit corporations. The Secretary of State has
no such authority.
Is there a difference between a "trustee"
and a "director"?
No. A Board of Trustees is equivalent
to a Board of Directors. Some nonprofit's find it advantageous
to have a Board of Advisors and may choose to describe its
powers in the bylaws. A Board of Advisors has no legal authority,
unless the bylaws or articles indicate otherwise.
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