What is a Non Profit Business

When you hear the term nonprofit business, what comes into your mind? As the name suggests, the owners are not after the profits. Any surplus funds will not be distributed to shareholders or members but will be used to achieve the goals.

Oftentimes, these businesses are exempted from property taxation and income taxes.

Nonprofit businesses have boards and members that are usually called shareholders. However, such shares can’t be sold to enjoy personal benefits. Profits are referred to as surplus and the business will retain the amount for future plans or expansion. Most of the employees are volunteers but there are some organizations that use the funds for rewarding or hiring corporate leadership. Personnel and other workers are unpaid.

Charities are usually NPOs and at times, the business can also be called endowments, foundations, and stock funds. There are certain structural elements that you need to consider meeting legal requirements. This includes economic activity, supervision/management provisions, representation, accountability or auditing, amendment provisions for articles of incorporation, dissolution provisions, and tax status (corporate donors, private donors, and foundation).

If you’re planning to start a nonprofit business, you must determine the laws in your country regarding management or establishment of NPOs. Ideally, you should comply with the regimes of corporate governance. All expenditure and income documents should be presented to the people. The board members should have trust and loyalty, and must carry out their fiduciary duty.

To organize a nonprofit business, you need to start with the incorporation. This is needed to create the legal entity and it will be treated as a corporation. With this, the business can now undertake business dealings, own property, and form contracts. Most of today’s nonprofit businesses don’t have members although some still have members. The business can also be an association or trust. Members can elect their own board, trustees, or governors.

Nonprofit businesses don’t issue stocks and they don’t pay dividends. The directors can be compensated but it should be within the reasonable bounds. If you’re interested, you must know the basics and gather vital info that you can use in making informed decisions.


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