Non-Profit & Tax Exempt Organizations

Non-Profit and Tax-Exempt Organizations

Our Business Law Atttorneys have assisted in the formation and management of dozens of non-profit organizations.  Minnesota not-for-profit organizations are governed under state and federal statutes, state and federal regulations (e.g. MN Dept. of Revenue and IRS), and various other legal authorities. Non-profit law in Minnesota (MN) requires careful legal compliance to protect an organization’s non-profit status or tax-exempt status.  We represent non-profits of all sizes and types, and help their entity organize and maintain their non-profit organization.

on-profit organizations do not issue stock shares or distribute its surplus funds to owners or shareholders.  Instead, they use the funds to help achieve its goals.  Many non-profits include charitable organizations, public arts organizations and trade unions/associations.  Non-profits are able to earn a profit (surplus) and those profits must be retained by the organization for its own self-preservation, expansion or plans.

Incorporating as a non-profit 501(c)3 organization provides an organization with considerable tax benefits.

Advantages of Setting up Your Business as a Non-Profit

• No taxes: Non-profits are eligible for state and federal exemptions from corporate income taxes

• Funding: Non-profits qualify for special grants, government funding and discounts.

• Ability to accept donations: The non-profit can fundraise from donors and Individual donors can claim personal federal income tax exemptions for those donations.

• Limited liability: Just as in a for-profit corporation, owners & directors are shielded from personal liability for business debts.

• Longevity: Like a corporation, a non-profit entity is separate from the individuals who manage it.

Disadvantages of Setting up Your Business as a Non-Profit

• Set-up expenses: application and qualification process more involved than typical business

• Regulatory requirements: numerous regulatory requirements including annual reports to federal and state agencies

• Limits on salaries: Managers may only be paid reasonable salaries, can’t divide profits equally

• Limits on Board of Directors: Board of directors may not be paid

• Issue on dissolution: On dissolution, must distribute to other non-profits

• Public scrutiny: Because a non-profit is dedicated to the public interest, its finances are open to public inspection.

Non-profit organizations are formed by filing bylaws or articles of incorporation.  Incorporating creates a legal entity treated as a corporation, just as a for-profit corporation.

The two major types of non-profit organizations are membership and board-only.  A membership organization elects the board, has regular meetings and has the power to amend the bylaws. A board-only organization typically has a self-selected board and a membership whose powers are limited to those delegated to it by the board.

Before setting up your business as a non-profit, there are several requirements for a non-profit to be exempt from federal income taxes the organization must meet the requirements set forth by the IRS.  The IRS reviews applications to ensure the non-profit meets the conditions, such as appropriate purpose, limitations on spending and internal safeguards for a charity.  At Klun, our Business Law Attorneys can help you meet these formalities.