How is profit and non profit organizations different?

Many people think that nonprofit means that the organization cannot make a profit. This is not true. In order to survive, nonprofit organizations must ensure that there is a surplus of revenues over expenses.

We use the term nonprofit because these organizations are not set up for the sole purpose of making a profit and they pursue public benefit purposes that are recognized under federal and state law. They do not pay taxes, but it also cannot use its funds for anything other than the mission for which it was formed. The profit must be used solely for the operation of the organization or, in the case of a foundation, granted to other nonprofit organizations.No person owns shares of the corporation or interests in its property because it is owned by the public.

Control of a nonprofit is exercised by a governing board of directors or trustees. The responsibility of that board is to see that the organization fulfills its purpose. Board members do not act as individuals, but must act as a group.

There are two types of corporation based on their missions, non-profit Corp and for profit Corp and based on their corporate status the tax status would be different. There are different tax status for For profit corporations, first is called the default status which is the status assign to you by the IRS at the time of corporation and it is called C Corp which has 35% tax rate on your taxable income. The second option is S Corp which is available only to corporation with these criteria: 1- less than 35 shareholders, 2- all shareholders have to be U.

S citizens, 3- Corporation has to be for legal purposes, 4- not publicly traded. The S Corps have no corporate tax rate and is also called "pass through entity" then the income tax is paid at the individual rate of shareholders and your corporation could be S Corp just by application (form 2553). Incorporating businesses is the job of individual states and the details of the incorporation process depend on state laws.

A company can incorporate in any state whose requirements it can meet, which may not necessarily be where it does most of its business. Some states, like Delaware, are famous for their pro-corporate legal environment, but most small businesses choose to incorporate locally to avoid the extra costs and complications of foreign incorporation and the tax rate is the same at the state and federal level. About non-profit corporations there are two basic types of tax status, 1- Taxable or default status which is 15% tax rate on income, 2- Tax exempt, which it means no income tax and for being eligible for tax exempt you must have these criteria: 1- be charitable(religious, scientific, educational) 2- being for public benefit.

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