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Non Profit Businesses - A Detailed Review

WHAT ARE NON-PROFIT BUSINESSES?

Surplus revenues are utilized by nonprofit businesses to obtain their goals rather than distributing the same as dividends or profits. In other words, the surplus revenue generated is retained by such businesses for its plans, expansion or self-preservation. Some non profit businesses might also be a service organisation or a charity. They might exist informally, as a cooperative, a trust or a not-for-profit administration.

Apart from the management, many such organisations have paid staff. Unpaid executives and volunteers might be employed by such organisations who usually work without any sort of compensation. Most of the members in such non profit organisations are aged between 18-35 years. The executive members usually organise and motivate the others for achieving the goals. There needs to be a good balance of fun and work which should be appreciated by the members without feeling exhausted.

ORGANIZATIONAL STRUCTURE:

Nonprofit businesses have a wide diversity of purposes and structures. However, there are some elements of importance for the purpose of legal classification. A few of them are tax status of private donors, corporate and the foundation; representation, provisions for dissolution of the entity, management, auditing, accountability and supervision; economic activity etc.

Nonprofit businesses are established by filing articles of corporation and/or bylaws in the US. The law treats the NPO (non profit organisation) as a corporation after its legal entity is created through the act of incorporation. Thereafter, the organisation may own property, form contracts and enter into business dealings as any other for-profit corporation or individual may do.

Unlike business corporations, NPOs are not subject to the following:
1. Shareholder discipline of their capital
2. Market discipline for various products

SELECTION OF MEMBERS:

The board-only and membership are the two main types of nonprofit businesses. The board is elected by the membership organisation which has the power to make changes in bylaws while conducting regular meetings. On the other hand, the board is self-selected in case of a board-only organisation. In such a case, the board may choose to limit the powers of a membership.

Many NPOs may not have any members. In other cases, the members controlling the organisation light elect the Board of Trustees, Board of Governors or the Board of Directors. The representation of corporations and groups as members might be allowed by a delegated structure. Alternatively, successors might be elected might the Board of Directors itself in case of a non-membership organisation.

TAX-EXEMPTION IN CASE OF NONPROFIT BUSINESSES:

Status of tax exemption might be applied by non-profit businesses in many countries. An organisation needs to fulfil the standards set by the IRS [Internal Revenue Service] to be exempted from federal income taxes in US. An authorisation letter granting a status of tax exemption [for deductibility and filing purpose apart from income tax payments] might be issued by the IRS after reviewing the application.

An organisation might not be guaranteed exemption from local and state taxes despite being exempted from federal taxes. However, exemptions might be offered in case of NPOs from other taxes such as property tax or sales tax by individual localities and states. The requirements in case of such taxes might be quite different as compared to that of IRS. Separate application processes might be in place for such exemptions. It is to be noted that even at federal and state level, a nonprofit business needs to submit its annual financial reports despite its tax exempted status.

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