Answer: If you qualify as a not-for-profit entity and you subsequently qualify for tax-exempt status, you would be able to apply for grants and donations to generate the capital you would need to operate your business. You would be permitted to receive a fair salary for your efforts but would not be entitled to any remaining net profits. The income generated must be used for the public benefit intended. Since you do not have adequate capital to promote your business for profit, choosing the non-profit route is worthy of consideration. You might consider having two entities one for profit and another for non-profit.
A nonprofit corporation is simply a corporation that is formed pursuant to state law. The Department of State recommends that you consult a private attorney and an accountant regarding the formation of a not-for-profit corporation. The corporation must be formed for some religious, charitable, educational, literary or scientific purpose. While a standard business corporation is designed to benefit and generate a profit for its shareholders, nonprofit do not have the profit motive. Nonprofit corporations are allowed to apply for tax-exempt status at both the federal and state level.
The first step is to file nonprofit articles of incorporation with the proper state agency. It is important that the articles contain the required clauses to make sure your articles with qualify for tax-exempt status.
After the nonprofit articles are filed, tax-exempt status must be applied for at both the federal and state levels. To apply at the federal level, a timely filing of form 1023 must be made. To determine what form needs to be filed at the state level, contact department that deals with taxation.
The corporation must comply with corporate formalities and hold annual meetings of directors and members. Bylaws must be adopted for the corporation. Documents that help you comply with these corporate formalities are contained in your corporate kit.
You would be well advised to attend a free Seminar on this very subject on November 17, 2007, Saturday morning, 10am at the St. George Library. Our Guest speaker will be Doreen M. Inserra, CPA, who services many not-for-profit companies. This seminar is open to the public, however we advise reservations be made by calling:
SCORE (718) 727-1221 or St. George Library (718) 442-8560.
