A non-profit organization is a group organized for purposes other than generating profit and in which no part of the organization's income is distributed to its members, directors, or officers. Non-profit corporations are often termed "non-stock corporations." They can take the form of a corporation, an individual enterprise (for example, individual charitable contributions), unincorporated association, partnership, foundation (distinguished by its endowment by a founder, it takes the form of a trusteeship), or condominium (joint ownership of common areas by owners of adjacent individual units incorporated under state condominium acts). Non-profit organizations must be designated as nonprofit when created and may only pursue purposes permitted by statutes for non-profit organizations. Non-profit organizations include churches, public schools, public charities, public clinics and hospitals, amateur sports organizations, political organizations, legal aid societies, volunteer services, organizations, labor unions, professional associations, research institutes, museums, and some governmental agencies.
Non-profit entities are organized under state law. For non-profit corporations, some states have adopted the Revised Model Nonprofit Corporation Act (1986). For non-profit associations, a few states have adopted the Uniform Unincorporated Nonprofit Association Act (See Colorado §§ 7-30-101 to 7-30-119). Some states exempt non-profit organizations from state tax and state employment programs such as unemployment compensation contributions. Some states give non-profit organizations immunity from tort liability (see Massachusetts law giving immunity to a narrow group of non-profit organizations) and other states limit tort liability by enacting a damage cap. State law also governs solicitation privileges and accreditations requirements such as licenses and permits. Each state defines a non-profit differently. Some states make distinctions between organizations not operated for profit without charitable goals (like a sports or professional association) and charitable associations in order to determine what legal privileges the respective organizations will be given.
For federal tax purposes, an organization is exempt from taxation if it is organized and operated exclusively for religious, charitable, scientific, public safety, literary, educational, prevention of cruelty to children or animals, and/or to develop national or international sports. Social security tax is also currently optional although 80 percent of the organizations elect to participate.
The Supreme Court has issued several rulings related to non-profits. If one were to identify a more recent trend among the rulings, it appears that the Court has tried to carve out exceptions which favor non-profits, such as Citizens United v. Federal Election Commission and Advocate Health Care Network v. Stapleton. Citizens United expanded First Amendment protections for nonprofit organizations with regard to political speech. In the Advocate Health ruling, the Court decided that “the ‘church plan’ exemption of the Employee Retirement Income Security Act of 1974 (ERISA) applies to plans that are maintained by a qualifying church-affiliated organization, even if that organization did not originally establish the plan.” The Advocate Health decision effectively eased certain ERISA requirements for relevant religious non-profits.
Federal Material
- U.S. Constitution and Federal Statutes:
- U.S. Code: 26 U.S.C. - Internal Revenue Code
- 26 U.S. Code § 501 - Exemption from tax on corporations, certain trusts, etc.
- U.S. Code: 26 U.S.C. - Internal Revenue Code
- CRS Annotated Constitution
State Material
- State Statutes
- State Judicial Decisions:
Additional Resources
- Justia Non-Profit Corporations Opinion Summaries
- New York Counsel on Nonprofits
- Not For Profit Corporation Law: Everything You Need to Know
[Last updated in July of 2023 by the Wex Definitions Team]
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