At this time of the year, people’s thoughts naturally gravitate toward more than just making holiday purchases for friends and friends. Indeed, many are motivated to write a check to a favorite charity or take a few hours out of their busy schedule to volunteer for a favorite cause.
One question to naturally arise in the face of all this altruism is how our favorite charities are organized under state law and any advantages that are extended to them based on their chosen business structure.
What exactly is a nonprofit corporation?
In general, a nonprofit corporation — hereinafter referred to as a nonprofit — is a business entity formed for purposes beyond just generating income. Indeed, a nonprofit is an organizing structure through which people sharing a similar mindset or vision come together to achieve a common purpose.
Given its practical, economical and flexible structure, a nonprofit is the entity of choice for groups of all sizes. By way of illustration, consider everything from United Way Worldwide and the Red Cross to local animal shelters or community art galleries.
For what purposes can a nonprofit be formed here in Utah?
A nonprofit can be formed in Utah for virtually any purpose provided it’s 1) lawful and 2) not undertaken for financial gain.
Does the state have any important rules governing the formation of nonprofits?
The most basic rules concerning the formation of a nonprofit in Utah include the following:
- The nonprofit cannot pay dividends.
- The nonprofit cannot have shareholders.
- The nonprofit can only compensate trustees, officers and members for services rendered and, even then, this compensation must be reasonable.
Are nonprofits afforded any special tax treatment?
Special tax treatment is one of the defining characteristics of nonprofits, as qualifying entities granted preferential status by the Internal Revenue Service under 501(c)(3) of the federal tax code are exempt from taxation.
What documents, if any, do those looking to form a nonprofit in Utah need to file?
In order to form a nonprofit, Articles of Incorporation will need to be filed with the Utah Division of Corporations and Commercial Code.
It’s important to understand that incorporation at the state level does not guarantee that a nonprofit will ultimately be granted tax-exempt status by the IRS. Indeed, this step must typically be completed before an application can even be filed with the IRS.
If you have questions about forming a nonprofit or business formation in general, consider speaking with a skilled legal professional who can answer your questions, explain the law and help make your vision a reality.