Advantages and Disadvantages of Starting a Nonprofit Organization

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Technology and the changing business world have made it easier for individuals to start their own business, but that’s no reason to completely step away from some of the older business models. When it comes to being an entrepreneur and giving back to the community and possibly even the world, you can’t go wrong with a nonprofit organization. Before you find out more about the online masters in public administration program to kickstart your career in the nonprofit sector, learn more about the ups and downs of starting your own nonprofit organization.

Advantage: Limited Liability

One of the great things about nonprofits is that employees, founders, members and other related individuals are not financially responsible for any of the debts incurred by the organization. The great thing about this is that these individuals don’t have to worry about their houses, automobiles or other assets being confiscated to take care of debts owed by the organization. That being said, there are limits to this liability, such as the fact that directors have an obligation to properly perform their jobs; otherwise, they can be held liable if any harm should come to the organization.

Disadvantage: Cost

There’s an abundance of time, energy and money involved in establishing a nonprofit organization. You can expect to pay anywhere from $200 to $850 just to apply for federal tax exemption, and there are also additional fees involved with incorporation. Additionally, you might need to hire an accountant or attorney, possibly both, to make sure you’ve got everything squared away under local, federal and state laws regarding nonprofit organizations.

Advantage: Tax Exemption

Another upside to establishing a nonprofit organization is that you’re exempt from paying corporate income tax, which can balance out the costs outlined above. Additionally, nonprofit organizations are exempt from paying taxes at the local and state level as well. To make it so that any charitable contributions made to the organization are also tax-exempt, the organization has to have 501(c)(3) tax-exempt status.

Disadvantage: The Amount of Necessary Paperwork

Before you get too excited about the fact that you don’t have to pay local, state or federal taxes as a nonprofit organization, know that that exemption involves detailed paperwork. Specifically, you’ll need to get into the habit of keeping meticulous records and submitting state and IRS filings every year. If you don’t, you stand a strong chance of losing your tax-exempt status.

Advantage: Grants

Nonprofit organizations can take advantage of the fact that a majority of government agencies and foundations only consider public charities for their grants. When the opportunity presents itself, organizations can ask for charitable donations from the public.

Disadvantage: Sharing Control

There are certain laws and regulations that determine how a nonprofit organization is allowed to operate. What’s more is the organization can put together its own set of bylaws and articles of incorporation, which can severely limit personal autonomy. Depending on the state, the organization might need a specific number of directors, and only these individuals have the ability to either choose officers.

Were these advantages and disadvantages enough to help balance your decision to start a nonprofit organization? Think more about what you and others have to gain and think less about what you have to lose.



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