Business formation and the nonprofit organization

Business formation and the nonprofit organization

On Behalf of | Jun 27, 2019 | Business Formation & Planning |

Many Louisianans who are considering starting a business do so with an eye on making money. They therefore begin their business planning with an eye on maximizing profits. There’s absolutely nothing wrong with that. However, that business model isn’t right for everyone.

In fact, some people want to create businesses that exist solely to further the public good. These businesses and organizations usually seek to obtain nonprofit status.

There are a number of reasons why the nonprofit business structure is advantageous. To start, it provides significant tax benefits. Nonprofits can be exempt from a number of taxes, including federal income taxes if the business or organization obtains 501(c)(3) status. These tax benefits can be achieved on the state level, too. Certain qualifications must be met, but these primarily pertain to the type of work being undertaken by the business or organization.

Another major benefit of the nonprofit structure is that it shields board members, directors, and members from personal liability. So, if the nonprofit is sued and the judgment exceeds what the nonprofit can pay, those affiliated with the nonprofit will not become responsible for that judgment. There are exceptions, of course. These exceptions usually apply when a nonprofit employee or board member personally does something that subjects the nonprofit to liability.

Although quite different from other businesses, nonprofits are formed much like corporations. Articles of incorporation may need to be drafted and bylaws created, and a board of directors is typically appointed. Additional steps must be taken to achieve tax-exempt status, though, which need to be addressed with care considering the fact that these benefits are one of the biggest draws of this formation type. Those who have questions about the benefits of nonprofits and how best to go about creating one can sit down with an attorney to discuss the matter further.