A non-profit organization (NPO) is specifically formed for purposes other than operating a profit-seeking business. A not-for-profit corporation is a type of NPO. These organizations are also referred to as 501(c) corporations, named after the section in the Internal Revenue Code for the designation of non-profit organizations. If an NPO obtains 501(c), it is not required to pay federal income taxes and other types of state taxes. The purpose of the organization and the structure of the organization will determine whether a not-for-profit corporation will qualify for tax exemption status under 501(c).
Distinguishing Between Not-For-Profit and For-Profit Organizations
Even though the name not-for-profit implies that the NPO will not turn a profit, it is a mistaken belief that non-profits cannot and do not make money. Many actually do make money from their own charitable activities or from ways unrelated to non-profit purposes. The main structural component that distinguishes profit from not-for-profit corporations is how profits are distributed. In for-profit corporation, the profits of a corporation can be redistributed to shareholders. In a not-for-profit corporation, the profits go back into the organization. In addition to how profits are distributed, the overall purpose of the organization will determine whether a corporation will qualify as a 501(c) not-for-profit corporation.
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