A not-for-profit corporation, or NPO, is a corporate entity that is legally formed to generate income for philanthropic purposes rather than for personal or for shareholder gain.
The Function of a NPO
NPOs have specific goals, presented in a mission statement that defines the purpose of the organization. NPOs are usually formed to support a specific cause or idea. For example, NPOs are formed to support education, information, development or delivery of aid and assistance. Classic examples of NPOs are the Red Cross, the Sierra Club and Habitat for Humanity.
Funding an NPO
NPOs seek funding from a variety of sources, including individual giving, event-based fund raising and government, corporate and foundation grants. Funds can be used either for general operating expenses or specific projects. Donors can earmark where and how their contributions are used.
NPOs and Tax Exempt Status
Donors often give to NPOs because of the potential for a tax deduction. However, not all NPOs are entitled to offer deductions to contributors. Be specific when incorporating so there is no confusion. NPOs are required to have financial transparency and are carefully monitored by local, state and federal taxing agencies.
Operating an NPO
Most NPOs have a board of directors who support and often help fund the NPO's mission. Depending on the size and structure of the NPO, the board selects an executive director, who is responsible for long-range planning and overseeing fund raising and day-to-day operations.
Incorporating an NPO
Incorporation, whether for profit or non-profit, is controlled by state governments and each state has specific criteria for NPOs. Guidelines for setting up a non-profit corporation are readily available from each state's official website. There are several classifications of NPOs and each one has its own set of rules.
