Nonprofit Business Legal Structure

As you organize your nonprofit venture, you want to choose a legal structure appropriate for your situation. The following nonprofit business structures represent your basic options:

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  Informal nonprofits: As the name implies, these organizations are loose-knit groups of like-minded people who get together for activities or to be of service to the community. Examples include local book clubs, self-help support groups, or graffiti cleanup patrols. Informal nonprofits have no legal structure and typically raise and manage only small sums of money. They aren’t big enough to fall under the watchful eye of the IRS.

  
  


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  Nonprofit corporations: Incorporation allows a nonprofit organization to protect its directors and staff from certain types of liability, similar to the protective shield offered to for-profit companies. Incorporation also ensures that the organization will be able to continue its activities even when the founding members are no longer around. To get the details on incorporation in your state, check with the office of your Secretary of State, Division of Corporations, or Attorney General.

  
  


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  Tax-exempt nonprofits: Nonprofit corporations with charitable, educational, scientific, religious, or cultural purposes can file for tax-exempt status under section 501 of the Internal Revenue Service Code. The major types of tax-exempt organizations include

  
  
  
  
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    Charitable organizations (religious, educational, scientific, and literary organizations, for example)

    
    
  
  
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    Social welfare organizations (civic leagues and community groups)

    
    
  
  
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    Labor and agricultural organizations (labor unions and farm bureaus)

    
    
  
  
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    Business leagues (trade associations and chambers of commerce)

    
    
  
  
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    Social clubs (country clubs, fraternities, and sororities)

    
    
  
  
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    Fraternal organizations (lodges and other clubs)

    
    
  
  
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    Veterans’ organizations (armed forces groups)

    
    
  
  
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    Employees’ associations (employee-benefit groups)

    
    
  
  
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    Political organizations (campaign committees, political parties, and political action committees [PACs])

    
    
  
  
  
  


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  Qualified nonprofits: Donations to qualified nonprofits may be tax deductible — a distinction that can matter a great deal to contributors. Qualified organizations include religious, educational, scientific, and literary groups, as well as child and animal welfare organizations, certain veterans’ organizations, fraternal societies, and more.

  
  

For information on whether your organization qualifies for tax-exempt status, check out IRS Publication 557. For a current list of qualified nonprofits, look at IRS Publication 78. Both publications are available on the IRS website.

In the world of nonprofit organizations, you’re likely to hear a different language than the one spoken in the hallways of for-profit companies. Here’s a quick translation guide:

For-profit Jargon	Nonprofit Lingo
Balance sheet	Statement of financial position
Profit-and-loss statement	Statement of financial activities
Customer	Client
Investor	Funder, contributor, donor
Product or service	Programs or services
Market analysis	Needs assessment

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Source:http://www.dummies.com/how-to/content/nonprofit-business-legal-structure.html