Shareholders vs. no shareholders
One of the primary differences between a nonprofit corporation and for-profit corporation is the fact that a for-profit corporation has shareholders, while a nonprofit is not permitted to have any shareholders. Because a nonprofit is formed for the benefit of others, no dividends can be distributed among members or shareholders. Any additional profit made must go to the cause and purpose for which the nonprofit organization was formed, reasonable salaries for employees, and to cover the necessary expenses of the nonprofit. With a for-profit corporation, the purpose of its formation is to benefit the owners and shareholders with dividends. This does not mean that all money made must go to support the cause of the nonprofit. It simply means that after the nonprofit has paid its bills and other obligations, any leftover money goes straight back into the organization, and not the private pocket of any individual.
Dissolution of the corporation
When it comes to the end of a corporation’s life, the fate of leftover assets differs between for-profit and nonprofit corporations. In a for-profit corporation, the assets may be divvied up and distributed among the shareholders after any additional debts and legal liabilities have been taken care of. The assets of a nonprofit, however, must be handled differently. They must be distributed out to another nonprofit or nonprofits, and not among members or individuals.
Taxes and nonprofit status
Most nonprofit organizations have the ability to become tax-exempt under a variety of IRS definitions, while for-profit corporations do not have that option. While nonprofits have the option to become tax exempt, this does not mean that they automatically fall under that status. A nonprofit corporation must apply with the IRS, as well as the state, to receive federal and state tax exemptions. If a nonprofit corporation is offering an excessive salary to any of its employees, it runs the risk of losing its tax-exempt status.
Another primary difference between nonprofit corporations and for-profit corporations is that because most nonprofit organizations (with the exception of mutual benefit nonprofits) will be soliciting donations from the public to help in part to aid the purpose for which they were formed. Because of this, these nonprofits must file for charity registration with the attorney general or similar state office in the state where they are formed or operate. Because for-profit companies do not receive funds in this way, there is no need for them to do any additional charity registration.
Can funds be distributed to individuals upon dissolution?
Are shareholders allowed?
Is it eligible for tax-exemption?
Is charity registration required?