The most rarely started of all the entrepreneurial business structures, a nonprofit is a business entity created to serve an educational, scientific, religious or charitable cause. For those considering a nonprofit business structure, let's first look at what exactly it is, before discussing the benefits and drawbacks.
What Is a Nonprofit Business Structure?
A nonprofit can be a corporation, trust or unincorporated association, but for most situations, official nonprofit status is advised. Keeping this in mind, an official nonprofit business is a corporation that has received tax-exempt status from their federal and state authorities.
Benefits of a Nonprofit Business Structure
There are benefits and drawbacks with every business structure. The perks to choosing a nonprofit, are:
- Donor Write-Offs: Unlike all of the other business structures, a nonprofit allows any and all donors to the business to write off their gifts, grants and donations, which are really the only ways a nonprofit can increase their capital since they have no shares to sell;
- Flexible: A nonprofit corporation doesn't have shareholders like a regular corporation does, but they do run their businesses like a for-profit business, and therefore have a Board of Directors and officers like any other corporation does;
- Debt Offerings: A concept only available to nonprofit corporations, a debt offering is a way to raise capital for nonprofits unable to do so through the sale of shares.
Drawbacks of a Nonprofit Business Structure
There aren't a lot of drawbacks if you'd like to start up a nonprofit corporation. They are:
- Lots of Paperwork: Like a corporation, nonprofits have a lot of paperwork to file on a regular basis: bylaws, meeting minutes, and so forth. If a nonprofit doesn't file these mandatory documents on a regular basis, they can forfeit the corporate charter (what defines a nonprofit corporation as a business entity in the eyes of the law) as well as the personal liability of the directors and officers. Nonprofit corporations also have a couple of more forms to fill out and submit regularly that regular corporations don't, depending on their state laws and regulations;
- Exempt Status: Filing as a nonprofit corporation in many states isn't enough to receive a tax-exempt status; in some states, there is another application to be made.
For More Information about Business Structures...
Think a nonprofit isn't the right business structure for your entrepreneurial venture? Then take a peek at the pros and cons of sole proprietorships, partnerships, limited liability companies, and corporations.
