What is a Nonprofit Corporation? - Definition & Example

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  • 0:00 What's a Nonprofit…
  • 2:00 Examples of Nonprofits
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Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

This lesson will define a nonprofit corporation. We will look at the benefits of being a nonprofit corporation and discuss examples that highlight what distinguishes nonprofit corporations from other types of organizations and businesses.

What's a Nonprofit Corporation?

What do the Bill and Melinda Gates Foundation, the National Association for the Advancement of Colored People (NAACP), and the Chamber of Commerce have in common? These organizations are classified as nonprofit corporations. This means that they weren't established for profit. They were created to serve humanitarian and educational needs. Let's look into what makes these organizations nonprofit corporations.

A nonprofit corporation is a company that was developed for a purpose other than making a profit. Any money left after paying debts goes back into the organization. There are no shareholders, but they are often run by a group of stakeholders. The NAACP, for example, has a national board of directors that oversees its operations.

Typically, nonprofit corporations provide educational, trade, charitable, advocacy, informational, humanitarian, or religious services. Each corporation provides either a public good or a service for a select group. For example, the Gates Foundation identifies problems that have been overlooked for funding. The Foundation then uses grants and contracts to find solutions. The organization has invested in research that focuses on a cure for HIV, clean water in underdeveloped areas, and agricultural development.

The social benefits provided to the public by nonprofit corporations exempt them from state and federal taxes. Section 501(c)(3) of the Internal Revenue Code provides the details on the nonprofit tax exempt status these companies fall under for federal taxes. States, however, may have additional guidelines. These rules do require nonprofit corporations to donate their assets to similar tax-exempt nonprofit corporations if they ever disband.

Besides a tax-exempt status, nonprofit corporations have several other benefits. These include:

  • Limited liability protection that prevents those running the corporation from being held personally responsible for debts and liabilities.
  • The ability to accept tax-deductible donations.
  • The right to compete for and receive grants, contracts, and cooperative agreements put out for bid.

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