While Candid offers many nonprofit startup and early stage resources, it's important to think critically about whether starting a nonprofit is the right path forward for you and your goals.

Advantages of starting a nonprofit

Tax exemption or deduction

Organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible for federal exemption from payment of corporate income tax. Once exempt from this tax, the nonprofit will usually be exempt from similar state and local taxes. If an organization has obtained 501(c)(3) tax exempt status, an individual's or company's charitable contributions to this entity are tax-deductible. Learn more about how to start a nonprofit.

Eligibility for public and private grants

Many foundations and government agencies limit their grants to public charities. Nonprofit organizations also can offer tax deductions to individuals or businesses that give charitable contributions. Learn more about how nonprofits are funded and how new nonprofits can find their first prospective donors.

Formal structure

A nonprofit organization exists as a legal entity in its own right and separately from its founder(s). Incorporation puts the nonprofit's mission and structure above the personal interests of individuals associated with it.

Limited liability

Under the law, creditors and courts are limited to the assets of the nonprofit organization. The founders, directors, members, and employees are not personally liable for the nonprofit's debts. However, there are exceptions. A person cannot use the corporation to shield illegal or irresponsible acts on their part. Also, directors have a fiduciary responsibility; if they do not perform their jobs in the nonprofit's best interests, and the nonprofit is harmed, they can be held liable. Learn more about the legal duties of nonprofit boards.

Disadvantages of starting a nonprofit

Given these advantages, why would you not want to incorporate as a nonprofit? Here are some potential downsides to consider.

Cost

Creating a nonprofit organization takes time, effort, and money. Fees are required to apply for incorporation and tax exemption. The use of an attorney, accountant, or other consultant may also be necessary. Learn more about the cost of starting a nonprofit.

Paperwork

As an exempt corporation, a nonprofit must keep detailed records and submit annual filings to the state and IRS by stated deadlines in order to keep its active and exempt status.

Shared control

Although the people who create nonprofits like to shape and control their creations, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own articles of incorporation and bylaws. In some states, a nonprofit is required to have several directors, who in turn are the only people allowed to elect or appoint the officers who determine policy.

Scrutiny by the public

A nonprofit is dedicated to the public interest; therefore, its finances are open to public inspection. The public may obtain copies of a nonprofit organization's state and Federal filings to learn about salaries and other expenditures.

To explore alternatives to starting your own nonprofit, see our article, What are alternatives to starting a nonprofit? We also recommend reading our article, Is it a good time to start a nonprofit?

You can also watch Candid's recorded training, Is Starting a Nonprofit Right for You?

The downsides of starting a nonprofit organization
Candid insights

If you’re deciding whether to take your cause to the next level by forming a 501(c)(3), consider the common downsides of starting a nonprofit organization.

Five Questions to Ask Yourself Before Starting Your Own Organization
idealist.org

Before starting your own nonprofit organization, ask yourself these very important questions.

Five Reasons to Incorporate Your Nonprofit Association
Nolo

Not sure whether to incorporate your nonprofit? Here's some information to help you decide.

Nonprofit Corporation FAQs
BizFilings

Provides frequently asked questions about incorporating your nonprofit.

Alternatives to Forming a Charitable Nonprofit
American Bar Association

Article discusses using an existing nonprofit, fiscal sponsorship, and donor-advised fund as options to forming a separate charity. By Gene Takagi and Emily Chan of the Nonprofit Law Blog.