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A "non-profit" is simply a corporation with a charitable purpose that is recognized by governmental authorities as a distinct "legal entity" separate and apart from those individuals that are part of the organization. This separate legal status creates a measure of personal liability protection and the charitable purpose can result in potentially favorable tax status to both the organization and to those who contribute to it.

The concept of "non-profit" can be confusing. The non-profit organization can generate revenue and its employees can receive fair compensation for services performed, but any "profit" generated over and above operating expenses must be used to advance the charitable purposes of the organization.

Purposes that qualify as "non-profit" are wide-ranging. There are seven broad categories under which your organization must fit: charity, religious, educational, scientific, literary, amateur athletics, and prevention of cruelty to children or animals. These categories may differ slightly from state to state. Often, legitimate non-profit entities don't fit nicely into any of these categories. For example, an environmental advocacy organization is not an obvious match for any of these categories, but can be legitimately shoe-horned as a charitable, educational, or scientific organization.

There is a distinction between a "non-profit" and "tax-exempt" organization. A "non-profit" is an organization that has been incorporated within the state(s) it operates within. It is important to understand that the actual incorporation procedure-that is, the actual creation of the non-profit-occurs at the state level, not federal. The corporation process is a surprising straightforward procedure. Most states provide online access to the forms along with detailed instructions for preparing them. In Ohio, for example, the forms can be found at:

http://www.sos.state.oh.us/ sos/businessservices/nonprof.a spx.

Using your state's online resources, within a few hours and for a modest filing fee (between $150-$300), you can create a non-profit corporation.

A "tax-exempt" business is a non-profit corporation that has taken the extra step of being recognized as exempt for income tax purposes from the U.S. Internal Revenue Service (IRS). This requires substantially more paperwork and record-keeping, compared to the relatively straightforward incorporation process. The IRS provides very helpful resources for completing the application process on their website:

http://www.irs.gov/cha rities/charitable/article/0,id =123056,00.html.

Tax-exempt status is required if you want the income generated by your organization to be exempt from federal taxation and/or would like contributors to be able to receive a federal income tax deduction for contributions made to your organization.

A non-profit corporation is not particularly difficult to form. As mentioned above, your state will provide all the information you need to complete the process, typically through the "secretary of state's" office or your particular state's equivalent (you can simply "google" the following "[your state] secretary of state non-profit" to find the proper link). Many non-profits are formed without the assistance of an attorney. However, the process of applying for tax-exempt status is considerably more complex, and an attorney or tax specialist should be considered if you have any doubts about your ability to properly complete the forms.

Learn more about this author, Joseph Hazelbaker.
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