Non-Profit Corporation FAQ's

Commonly asked questions about the non-profit corporation formation process and information required:

What are the differences between for-profit and non-profit corporations?

Is a non-profit corporation exempt from taxes?

Can one person be the sole director and officer of a non-profit corporation?

Can a non-profit corporation make a profit?

Who has the authority to investigate the activities of a non-profit corporation?

Is there a difference between a "trustee" and a "director"?

What are the differences between for-profit and non-profit 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. Non-profit corporations neither issue shares nor pay dividends, no part of the income may be distributed to its members, directors, or officers.

Is a non-profit corporation exempt from taxes?

Non-profit does not mean tax-exempt. A “tax-exempt organization” is a unique entity that is usually a non-profit organization. However, a non-profit organization cannot be exempt from Federal and State income or franchise tax until it applies for an exemption. The IRS and the state franchise board issues a determination of exemption.

Can one person be the sole director and officer of a non-profit corporation?

Most states require three directors to form a non-profit. The following states will require less than three directors if there are less than three members:

Louisiana

Massachusetts

Minnesota

Virginia

The following states require only one director:

California	Colorado	Delaware
Michigan	Mississippi	New Hampshire
Pennsylvania	South Carolina	Virginia
Kansas	Oregon	West Virginia
Iowa	Oklahoma	Washington

Can a non-profit corporation make a profit?

Yes. A non-profit corporation can take in more money than it spends. It can use tax-free profits for its operating expenses, including salaries. What a non-profit corporation cannot do is distribute any profits to officers, directors, or employees.

Who has the authority to investigate the activities of a non-profit corporation?

The Attorney General has statutory authority to (1) investigate charities that operate as non-profit corporations, and (2) inspect the books and records of all corporations, including non-profit 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 non-profit's find it advantageous to have a Board of Advisors and may choose to describe its powers in the bylaws. A Board of Advisers has no legal authority unless the bylaws or articles indicate otherwise.