A2Z Filings

Why Do People Want to Set Up Nonprofits?

Starting a nonprofit organization can be an incredibly rewarding experience. However, starting and running a nonprofit is a serious business. Therefore, before jumping into setting up a nonprofit, it is important to learn why people set up nonprofits. Familiarize yourself with the benefits of nonprofits to decide if this type of opportunity is right for you and your business.

People start nonprofits for varying reasons. If your organization has a charitable or beneficial goal geared towards making a positive change in society, you may also want to consider setting up a nonprofit organization. It will allow you to avail various benefits from the state, scale the ladder to achieve your goal, and do charitable or beneficial work on a grander scale without any hassle.

 Moreover, nonprofit corporations are considered to be more credible and trustworthy as compared to informal organizations. Scroll down to take a look at why people set up nonprofits and what benefits you will receive by acquiring a nonprofit status instead of coming together informally to support a cause.  

1. Statutory Nonprofit Organization

A nonprofit organization has a perpetual existence, which means that the organization can act as a separate entity. In other words, regardless of what happens to the people involved in the business, the corporation will continue to exist as a separate entity. The corporation can continue while its directors, shareholders, and organizing members, executives, and employees come and go. Informal organizations do not have perpetual existence.

2. Limited Liability Protection

As opposed to non-statutory organizations in which the individuals entering the contract can be held liable, a statuary nonprofit organization is responsible for its own contractual and other legal obligations. Therefore, it protects the directors and other members against being personally held responsible for the debt or liabilities. In a non-formal organization, the individuals involved in the organization may be held responsible.

3. Tax-Exempt Status

One of the main reasons why people set up nonprofits is that the nonprofit status comes with various tax benefits, especially if your organization is recognized by the IRS as a 501 (c) (3) organization. These organizations can apply for tax-exempt at federal as well as state levels. However, IRS approval is required to become a tax-exempt 501 (c)(3)organization. They may be exempt from income tax, sales tax, property tax, etc.  

4. Accept Tax-Free Donations

Only formal nonprofit organizations allow you to accept tax-free donation money from individuals while also protecting your personal assets. Moreover, the nonprofit status helps the organization come off as more credible. As a result, donors will trust your organization, leading to a spike in the donation money.   

5. Low-Cost Postage Rates

Another advantage of setting up a tax-exempt organization 501 (c) (3) is that your organization will receive discounts on US Postal service. Running a nonprofit generally involves the use of UPS services on a regular basis. As a tax-exempt, nonprofit organization, you can avail discounts on bulk mail to save a considerable amount of money.   

6. Access to Private and Public Grants

Your organization may become eligible to apply for various private and public grants after gaining a formal nonprofit organization. It must be noted that certain grants and public allocations are reserved only for 501(c) (3) organizations. Therefore, setting up a tax-exempt organization 501 (c) (3) increases your chance of receiving a grant significantly, making it easy to receive operating capital.   

7. Registered Agents

Statuary nonprofits and LLCs are required to appoint a registered professional agent to ensure their documents remain up to date. A registered agent can also help you maintain and deliver various critical, legal, or time-sensitive documents that may be required in case the organization is ever sued.  

8. Social Entrepreneurship

The biggest benefit of setting up a tax-exempt organization 501 (c) (3) is that it makes it easier for you to work for your cause and bring a positive change in society. It is a rewarding experience that allows social entrepreneurs to create something bigger than themselves. A nonprofit organization is not just a company or a business – it’s a legacy.   

However, it must be noted that the process of setting up a nonprofit, especially a tax-exempt organization with a 501(c) (3) status, can be very challenging. From preparing comprehensive paperwork to filling out several forms, a lot of work is required to start up a tax-exempt organization 501(c) (3). Most people find it extremely difficult to understand the official terms and jargon of the IRS language. This is another challenge that ultimately results in the denial of nonprofit or tax-exempt status.

The Bottom Line

Now that you know why people set up nonprofits, you can decide if starting a nonprofit is the best course of action for you. If setting up a tax-exempt organization 501 (c) (3) aligns with your goals, it is best to let the professionals handle this task for you.

You can rely on A2Z Filings to guide you through the process. We can help you prepare the paperwork and secure a tax-exempt organization 501(c) (3) from the IRS. We can also write innovative business plans and winning grant proposals for you. Contact us today or visit our website to learn more about our services.