nonprofit corporation

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A nonprofit corporation is a legal entity that has been incorporated under state laws to operate for purposes other than making profits.  The laws that govern the incorporation and operation of nonprofit corporations vary by state. A number of states have adopted, either in toto or in modified form, the Model Nonprofit Corporation Act, a model legislation developed by the Nonprofit Organizations Committee of the Business Law Section of the American Bar Association, while other states follow for-profit business law in this area.

The purposes of nonprofit organizations are wide-ranging and often overlap with the uses of the word “charity.” For example, the Supreme Court of California defined “charitable purposes” broadly to encompass: “(a) the relief of poverty; (b) the advancement of education; (c) the advancement of religion; (d) the promotion of health; (e) governmental or municipal purposes; (f) other purposes the accomplishment of which is beneficial to the community.” 

State statutes may establish several types of nonprofit corporations.  In California, Sections 5000-10841 of the California Corporations Code describe three common forms:

  1. Public Benefit Corporations may be formed “for any public or charitable purposes,” but may not be formed for the benefit of any private person.
  2. Mutual Benefit Corporations are corporations, such as private homeowners’ associates or private clubs, that generally may be organized to benefit their own members and are not required to exist solely for charitable purposes.
  3. Religious corporations are formed and organized for religious purposes.

The sections define regulations around matters such as formation; bylaws; selection, removal and resignation of directors; compliance with the Internal Revenue Code; members; and dissolution

Nonprofit corporations may qualify for a federal tax-exempt status under 501(c)(3) of the Internal Revenue Code. In California, a public benefit corporation may qualify for this status, while a mutual benefit corporation that is not formed exclusively for charitable purposes would not qualify.

[Last updated in July of 2020 by the Wex Definitions Team]