Nonprofit companies often generate a large portion of their funds from donations.
Many people believe that nonprofit companies do not or should not make any money. However, companies that don't earn money and don't receive charitable donations usually don't stay in business very long, whether they're for-profit or nonprofit operations. As an officer of a nonprofit company, you're entitled to compensation for your services. In other words, you can indeed earn money.
Definition of a Nonprofit Company
Nonprofit companies are also called not-for-profit corporations. Like for-profit companies and corporations, nonprofit companies are corporations governed by the laws of the state in which they are incorporated and are governed by a board of directors. However, nonprofit companies don't operate with the purpose of making a profit and don't pay dividends to stockholders. Instead, nonprofit companies have a mandate to perform a public benefit, and money the company makes must be used for operating costs or to promote the purposes of the company.
Making a Profit versus Earning Money
Nonprofit companies are allowed to charge for their services, and to use their earnings to cover their administrative costs, including office or manufacturing space, supplies and staff. It's also not true that nonprofit companies cannot grow. Depending on their stated purpose, nonprofit companies may use their earnings to open branches in various locations or enlarge the physical facilities of a single location to serve more people or make their operations more efficient. As the founder or executive director of a nonprofit company, you're entitled to a salary for your work that is comparable to what you would be paid if you worked for another company.
Ownership versus Management
By law, nonprofit companies don't have owners in the conventional sense of the word. The board of directors control the operation of the company rather than a single owner. Board members customarily don't receive monetary compensation, although they may receive reimbursement for expenses related to their work on the board. As the founder of a nonprofit company, you may serve on the board of directors as the executive director or chief executive officer, or you may serve in both functions.
Tax Implications
Nonprofit corporations aren't automatically exempt from paying federal income taxes. Each nonprofit corporation must apply with the Internal Revenue Service to obtain tax-exempt status. States also often grant tax-exempt status to nonprofit corporations that perform a public service, as well as religious organizations, educational and scientific research organizations, animal welfare organizations or activities that promote international sports. However, employees of nonprofit corporations, including the executive director or chief executive officer, are subject to individual federal and state income taxes on their wages.
