Non Profit Organisation Legal Requirements

A not-for-profit organization is a group organized for purposes other than profit and in which no portion of the organization`s income is distributed to its members, directors or officers. Not-for-profit organizations are often referred to as “non-public enterprises.” They can take the form of a corporation, a sole proprietorship (for example, individual charitable donations), an association without legal personality, a partnership, a foundation (characterized by its endowment by a founder, in the form of guardianship) or a condominium (co-ownership of common areas by owners of neighbouring individual units established under state condominium laws). Non-profit organizations must be designated as non-profit organizations when they are formed and can only pursue purposes that are legally permitted for non-profit organizations. Not-for-profit organizations include churches, public schools, public charities, public clinics and hospitals, political organizations, legal aid societies, voluntary services, unions, professional associations, research institutes, museums, and some government agencies. Marketing strategies within non-profit organizations are different from those of commercial enterprises. For example, not-for-profit organizations often pursue multiple non-financial marketing objectives; they commercialize social change, which Liao et al. (2001) called “social orientation”; and they receive more public attention, both positive and negative, than the average firm (Shapiro, 1973). In this way, there is more appeal to public opinion. Non-profit organizations operate under many names, such as non-profit organizations, churches, private foundations, and political groups. Depending on the type of nonprofit, there are different state and federal tax exemption requirements.

To benefit from special tax exemptions, an organization must focus on activities that are not normally carried out for profit. No income that personally benefits individuals, directors or employees of the corporation is permitted. Churches and religious nonprofit organizations are a special case, as the First Amendment to the U.S. Constitution prohibits the government from enacting a law that “respects a religious community” and also prohibits “prohibiting the free exercise of that community [i.e., religion].” The First Amendment originally bound only the U.S. federal government, but it also binds state and local governments by its inclusion by the 14th Amendment. Under the Restoration of Religious Freedom Act, many generally applicable state laws regarding employment, zoning and the like for churches will be relaxed. Under certain circumstances, a nonprofit`s books and records are also publicly available under the Texas Public Information Act (Chapter 552 of the Government Code). Paragraph 552.003(1)(A) of the Public Information Act defines “government entity” as “a part, division or part of an organization, corporation, commission, committee, agency or body that spends or supports, in whole or in part, public money.” For more information on the Public Information Act, please contact the Attorney General; The Secretary of State cannot advise on the application of the Public Information Act to a particular non-profit organization.

In order for a corporation to qualify for tax-exempt status, it must determine (a) the articles of incorporation – if it is a not-for-profit corporation – or (b) the trust indenture – if it is a trust – or (c) the articles of incorporation – if it is an association – that none of its assets will benefit persons who are members, directors, officers or agents (their principals). In addition, the organization must have a legal and charitable purpose, that is, it must be created to support educational, religious or charitable activities. [2] These elements do not mean that the organization cannot compensate employees or contractors for the work or services they provide to it. This restriction means that as long as the organization operates within its exempt purposes and maintains a foundation or uses surplus income to further develop its business, it will not be imposed by the Internal Revenue Service. Non-profit organizations that want to dissolve must repay all their debts and obligations.