Advantages

Tax exemption/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 starting 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.

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. Learn more about nonprofit boards.

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.

Given these advantages, why would you not want to incorporate as a nonprofit?

Disadvantages

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.

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.

Test how ready you are to change the world by answering 75 questions in our Nonprofit Startup Assessment.

Find out more with Candid's course, Is Starting a Nonprofit Right for You? Attend the class in person, or watch the video.

To explore alternatives to starting your own nonprofit, click here.