A non-profit organization, also known as a 501(c) organization in legal terms, is an enterprise that functions for a purpose or motto other than generating financial gains. Such organizations may be an individual start-up or a part of a successfully running corporation or even partly government owned or aided. Some standard examples of nonprofit organizations would include volunteer services, charity run organizations, public educational organizations and government run hospitals.
Tax Advantage for non-profit business
A nonprofit organization works within the realm of certain purpose, under both State and Federal regulations and functionality and code of conduct which enables the company to be deemed as non profit and fall under the statuettes of 501 (c) organizations. Such organizations although are not financially driven have a major advantage when it comes to filing for taxes.They are exempted from paying tax.
Legal Issues Related to Non-profit
Although a non-profit firm functions with integrity, there can be instances when the organization could be in a state of legal non-compliance for reasons such as
- Any anomalies in the liability clauses of the organization’s original contract can subject the organization to venture into legal hassles
- When it comes to management hierarchy, non profit organizations, like any other regular corporate firm, has a team of MD, board of directors, vice president, salaried executives and officers running the organization like a well-oiled machine. Hence any liability or misjudgment on their behalf while making a decision or taking action within the scope of the organization can result in the organization fall under legal scrutiny or worse, litigation.
- Non-profit organization, in itself does not strive to generate any profits or function for the process of achieving maximum financial gain. However, in case of the company earning surplus from its noble purpose activity which is completely tax free, if the organization is utilizing this money or resources in a manner that goes against the primary purpose, then its tax exempt status could be revoked.
- In some exception cases, the non-profit may be housed on disputable commercial property or real estate. This may or may not result in a tussle between the organization and the estate owners or any other parties involved.
Why a lawyer would be a necessary asset for a Non-profit firm
- At the formation stage of the non-profit organization, the process of earning a tax-exempt status for your organization can be quite complex. An efficient tax attorney would walk you through the intricate steps of getting the non-profit status and help you expedite the process.
- Non-profits like a foundation trust or charitable trust function on the donations received from their founding members or patrons. The donation received works as a beneficiary for both the trust and the donating members. The patrons who have made donations will receive a tax deduction for the amount donated. All this has to be properly documented. A good lawyer would be able to draw the legal paperwork and ensure that everything is signed, sealed and documented in paper for further audit.
- A capable lawyer would be able to disburse the surplus income earned by the business into proper purposeful channels and validate the paperwork