The concept that has a nonprofit organization can be difficult to understand for some, especially considering that the answer is “no one … and everyone!” We find this confusion with new customers on a fairly regular basis. And, given the understanding of business people based hand it is understandable. To fully appreciate the concept of “no property”, it is useful to talk first about the different types of business entities. So let’s see the purpose of the organization. At the end of the article, you must make much more sense.
There are several different types of business entities. With-profits make up the bulk of them. Here are some (others) … all have an owner or owners:
Business activities: A person working for profit. The sole owner assumes full responsibility for all liabilities and debts.
General Partnership: Two or more persons as co-owners of a lucrative business.
Corporation (profit) society itself assumes all liabilities and debts of the Corporation. A corporation is owned by shareholders. A shareholder has the protection of the debts and liabilities.
S-Corporation: A company may seek to obtain the “S Corporation” status for purposes of federal income taxes. The income of an S corporation is taxed only once: in the employee or shareholder level.
Limited Liability Company: An LLC is a formal association which combines the advantages of a limited liability company and the flexibility and single taxation of a general partnership. An LLC has members rather than shareholders.
With the exception of the LLC, the business entities listed above may not be used for nonprofit organizations. Even the use of an LLC is extremely rare and all members nonprofit LLC must be recognized 501 (c) (3) organizations, not individuals or entity types. The most popular business entity for nonprofit organizations is the nonprofit corporation. This kind of society is different from a typical profit or S-Corporation. Those shareholders (the owners). A nonprofit corporation has no ownership of any kind, only the parties. One of the interested parties do not own, but someone who has a stake in the successful operation of the organization. Interested parties may be members of the nonprofit organization, or even the beneficiaries of the nonprofit activities. One of the parties thereto have in common: they have no legal capacity for personal gain … therefore, non-profit. A nonprofit corporation is formed to carry out a public purpose, whether religious, educational, charitable, scientific or whatever. It is forbidden to act in a way that results in private inurement (profit) to individuals.
How can that be? Someone has to own, right? No, not really. The nonprofit organization is not “owned” by the person who started it. This is a public body that belongs to the general public. The organization responsible for operating the stakeholders are members of the board of directors.
In addition, a nonprofit corporation can not be sold. It is simply not possible. If a nonprofit corporation would “close” or dissolve the board of the nonprofit organization that distributes all of the nonprofit assets to another nonprofit corporation after all debts have been settled.
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