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Nonprofit Organizations: Basics

A nonprofit organization is a legal entity organized and operated for a collective, public or social benefit, in contrast with an entity that operates as a business aiming to generate a profit for its owners.

SUMMARY

Not-for-profit organizations do not earn profits for its owners. All of the money earned by or donated to a not-for-profit organization is used in pursuing the organization's objectives and keeping it running. Typically, organizations in the nonprofit sector are tax exempt charities or other types of public service organizations, and as such, they are not required to pay most taxes. In a nonprofit organization, income is not distributed to the group's members, directors, or officers. There are also nonprofit corporations known as non-stock corporations. Some well-known nonprofit organizations include the American Red Cross, United Way, and the Salvation Army. Almost anyone can start a not-for-profit and apply for tax-exempt status, but most not-for-profit organizations won't qualify for 501(c)(3) status. 501c3 is only for charitable organizations. But not-for-profits can be organizations like social clubs that exist to serve their members. They can be tax-exempt, but not 501(c)(3). To achieve tax-exempt status, the organization needs to request 501(c)(3) status from the Internal Revenue Service (IRS). If desired, the not-for-profit can also opt to incorporate. Once registered and running, the organization has to maintain compliance with the appropriate state agency regulating charitable organizations.