23 Jul 2022


General Aspects of Nonprofit Organizations

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Nonprofit organizations are prone to the long and tedious legal process of start-up as compared to their for-profit organizations. However, there are similar rules that govern the startup and the existence of both types of business entities. For instance, during startup, they both need to get registered by the office of the state secretary. The difference, however, comes in during taxation. The non-profit entity after being registered as incorporation applies for tax exception from the IRS while the for-profit pays taxes. Both institutions, however, are obligated to filling in the tax returns every year where the nonprofit organization shows the budget of how the collected funds are allocated and the profitable organization shows how the income statements. Moreover, public disclosure rules and regulation mandates all non-profit organization to make their dealings and projects known to the citizens because some of them fund the projects. 

The incorporation process should be a little lenient for non-profit organizations. For instance, some of the rules like the creation of by-laws and the rules surrounding the engaging of board members make the process complicated. Moreover, the entity's sole purpose is service to others and not making profits and thus having too many rules tends to discourage some of the entities that are just being set up. 

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One interesting fact about the not-for-profit organization is that the startup process requires more legal commitments than for-profit organizations. There has always been an assumption that since these organization's primary goal is not the generation of profits, the startup process should be easier but that is not the case. The nonprofit entities experience a lot of hardships in the identification and reaching out to board members, sourcing of funds to facilitate the activities and tedious process of obtaining tax exemption from the IRS. Besides, the firms are encouraged to apply for the Federal Employer Identification Number even if the company does not have employees because this is the number that the IRS uses to rack reports and the tax exemption application. 

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StudyBounty. (2023, September 17). General Aspects of Nonprofit Organizations.


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