Once you have registered a corporation with the state, you can ask the IRS to give you Not-For-Profit status through the IRS code section 501(c) 3. What this really means is that you are giving the organization to the public and that it will be operated for the public good.


Obtaining a 501(c)3 designation is not easy and requires a fair amount of time. It is usually best if you have been operating for a while and are able to demonstrate your effectiveness and standing in the community.


Churches are by definition 501(c)3 organizations. Others such as private schools, hospitals, and homeless shelters have to apply and be able to demonstrate their worth. A not-for-profit status means that people can donate to your organization and take the gift as a charitable contribution, which makes fund-raising a lot easier.


Not-for-profit, or exempt organizations, cannot be sold except to another non-profit and since they are considered public owned, no one can benefit directly from any such sale.


Officers and directors can be paid a reasonable salary. Since all records are subject to public scrutiny, there is a strong incentive to be as ethical as possible. In recent years some not-for-profit organizations have come under criticism for excessive salaries and other excesses.


501(c)3 organizations file a 990 information return annually which becomes a matter of public record. Contrary to popular belief, 501(c)3s can make a profit and accumulate a money, they just need to show a purpose and it needs to be a reasonable amount. For example a homeless shelter can accumulate money over several years and have various for profit activities if the purpose is to eventually build a new building or expand the ministry.


Non-profit groups can also operate for-profit businesses within the not-for-profit organization, for example a gift shop or cafeteria within a hospital or a church operated book store. If there is a for profit venture within the 501(c)3, they must file a 990-T return and pay income tax on the profit.