There are many people who want to make a difference in the world. If this sounds like you, you might wonder, should you start a nonprofit? If you want to change the world for the better in a formal way, consider creating a nonprofit organization, also called a not-for-profit or a nonprofit governmental organization. The focus of a nonprofit is to meet serious social needs that are unmet, unlike a for profit company that focuses on making money. A nonprofit organization should keep salaries at reasonable levels, so if you want to make a huge salary, you should form a for-profit company instead.
Nonprofits can take many different forms. Informal nonprofits are just gatherings of people who want to fulfill a local need, like cleaning up the neighborhood. A nonprofit corporation is an entity separate from its members and will likely be around for a long time. Nonprofit corporations are overseen by a board of directors, the members of whom are generally not paid, but reimbursed for expenses. Nonprofit corporations can have their own bank accounts and enter into contracts.
Tax exempt nonprofits have a structure similar to a nonprofit corporation, but it can avoid paying some taxes. The IRS grants this status to nonprofits in the United States and in Canada, the Canada Revenue Agency grants it. To get the status, the nonprofit has to be a corporation.
A charitable nonprofit has the structure of a nonprofit corporation and sometimes has tax exempt status. In addition, donors can deduct any amount they give the charitable nonprofit from their taxes. People who want to make donations will be more likely to give money to a charitable nonprofit because they can deduct that money from their taxes. These charitable nonprofits must provide services that attempt to meet a public need in order to avoid paying taxes over a certain amount. If you want to get lots of donations through your nonprofit, you will have to structure yourself as a charitable nonprofit. If you are interested in starting a charitable non profit, you might be interested in purchasing some type of fundraising software to keep track of contributors and campaigns.
Now that you have the lay of the land for different types of non-profit business models, hopefully you’ll be more informed in deciding, whether to go for profit or nonprofit, and which type of nonprofit if you decide to go this route. Proper business financial planning is critical to do up front, so be sure to get it right the first time.