If you are looking to start your own business, there are many questions you must have answers to before you can open your doors to customers. Among these questions is whether or not your business will be for-profit, or a non-profit organization.
Understanding if a non-profit business setup is best suited to meet your needs will allow you to structure your business appropriately from the beginning, and avoid making costly errors in the future.
What is the purpose of your business?
One of the easiest ways to determine if a non-profit structure is right for your business is to consider the purpose of your organization. In order to be eligible for non-profit status, a business must be actively committed to charitable works. These works can include furthering religious or educational causes, provide public assistance to people in need, or manage social or business leagues.
If your business activities will contribute to public welfare, it is likely that your business is well suited for non-profit status.
How will your business generate and use profits?
The generation and use of profits is another characteristic that sets non-profit organizations apart from their for-profit counterparts. Taking the time to identify how you will generate profits, and where these profits will be applied once they are received, can make it easier for you to determine the best way to structure your business.
If your plan is to solicit donations from individuals and organizations to fund your business activities, your business likely qualifies as a non-profit. Any profits that you do receive must be used to fund the charitable mission of your business, and excess money must be reinvested into the business in order to maintain non-profit status.
Are there tax benefits for being a non-profit organization?
Many business owners carefully examine the tax benefits of structuring their business as a non-profit before making a final decision. While it is true that non-profits are not required to file income tax statements (since they do not generate income, but invest any profits back into the business instead), these entities must play employment taxes for the staff members who run the non-profit organization.
Additional tax benefits non-profits enjoy include the ability to allow donors to write off their contributions as a tax deduction on their income taxes in the future.
Understanding the limitations and benefits that apply to non-profit organizations will make it easier for you to determine whether or not to structure your own business as a non-profit or for-profit entity in the future according to current business law.