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Non For Profit Organizations - Pros and Cons of Non for Profit Organizations - Advantages of Non for Profit Organizations, Disadvantages of Non for Profit Organizations

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If you are thinking of starting a company that has the best interests of the public in mind that allows you a comfortable salary, a standard corporation or proprietorship may not be what you are looking for. There are several benefits to what some people refer to as non for profit organizations. For starters, it should be mentioned that the term “non for profit organizations” is not grammatically appropriate. The correct term is either not-for-profit organizations or non-profit organizations.

The types of companies that can benefit from being formed as non-profit organizations generally have to do with the welfare of the community or select groups of individuals within a community. This is usually the primary reason for starting such an organization. Examples of these types of organizations include the following:

  • Homeless shelters
  • Soup kitchens
  • Childcare centers
  • Healthcare clinics
  • Community hospitals
  • Community law centers
  • Minority rights centers
  • Museums
  • Schools
  • Churches
  • Performing arts centers
  • Conservation/ecology groups

Advantages of Non for Profit Organizations

Not-for-profit organizations have several benefits over for-profit companies. While income will be limited to a reasonable salary, the other benefits are often enough to pursue your interest and get your vision off the ground as an active part of the community. The major benefits include the following:

When an organization is incorporated as a nonprofit entity, it is not required to pay taxes. This includes federal income tax, state income tax, and state sales tax, property taxes, and other local taxes.

Nonprofit organizations are open to receive donations from both the public and private sectors. Private donations can come from individuals or companies and the donator is exempt from paying taxes on the donation. Many donations and grants from the government organizations and some private organizations, such as United Way, are only available to not-for-profit groups.

Personal Liability Protection
After tax exemption, the next biggest reason for incorporating a nonprofit group is that it protects the members and officers from personal liability against the group’s debts and financial obligations. This means that the personal assets of the officers cannot be levied from injunctions or judgments against the organization from a court of law.

A non-profit organization can live on long after the members or officers have passed away. Because the organization is a separate legal entity from the individuals of which it is composed, stipulations for new officers can be made so that it can live on indefinitely.

Incorporating a nonprofit group gives the group a formal structure. This includes a mission statement, rules and procedures of operation, and the delegation of authority to officers, members, and employees.

Nonprofit corporations benefit from lower postage rates than are given to the public and for-profit companies.

Disadvantages of Non for Profit Organizations

Not every organization should be incorporated as a nonprofit. There are also disadvantages to such organizations. Here are some of those disadvantages:

Startup Cost
There are startup costs associated with the formation of a not-for-profit organization. These fees include state incorporation fees and the application for tax-exempt status. In addition, most people who start a nonprofit group will want to consult an attorney to make sure their paperwork and articles are all in order. Accountants are often consulted, also.

Nonprofit organizations are required to keep detailed records of all business transactions. These records must be filed annually with the IRS to continue operating under tax-exempt status.

Public Scrutiny
Nonprofit corporations are required to open their finances and records to the public. This includes salaries, expenses, revenues, and all other financial information.

Many nonprofit organizations begin as the vision of a single individual. Incorporating a non-profit group forces that individual to relinquish control to a board of directors. In addition, the individual who forms the company becomes subject to the company’s bylaws and articles of incorporation. It is possible in some situations for the founder to be ousted from the organization by the board.

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