How a Non-Profit Incorporation Forms LLC

A non-profit incorporation is formed based on different state laws and is established for purposes other than to make profits. It can be formed for various reasons like religious, charitable, education or as a research-oriented organization. These organizations can apply for tax-exemption at both the federal and state level. If a non-profit incorporation has been offered tax-exemption under 501(c) (3) of the Tax Code, it need not pay federal corporate income taxes which results in saving a huge amount of money.

Forming an LLC

A non-profit incorporation which has received 501(c) (3) eligibility can receive a grant from both public as well as private organizations. They also receive similar LLC or limited liability protection as is received by for-profit organizations. When a non-profit forms LLC, its directors or trustees, officers and members are not directly responsible for its debts and liabilities. The non-profit incorporation cannot function to generate profits for the owners and it should adhere to the norms of the IRS regulations.

Excellent Alternative

A non-profit incorporation forming an LLC is an excellent alternative to the regular way of running a business. In an LLC, the state laws take care of its formation and they follow federal tax regulations. It is much simpler to form an LLC with exemption from tax for non-profit incorporation. As soon as the decision is taken that the business will be formed as a non-profit incorporation, you should review the advantages of forming an LLC against that of forming a regular corporation.

Fallacies of Non-profit Incorporation

Non-profit incorporation is created in a similar way as a regular corporation. However, a non-profit incorporation needs to apply for tax exemption with the state in which it is formed as well as for federal tax exemption. To form a non-profit incorporation, you must:
• Choose a name for the corporation which is legally acceptable in the state
• The articles of incorporation need to be filed along with the filing fee
• You should apply for federal as well as state tax exemptions
• You should develop bylaws which provide details on how the corporation will function
• You must have an initial board of directors
• You must file applications for licenses or permits for the running of the corporation in your state as well as local municipality

Fallacies

A lot of fallacies occur when a non-profit incorporation is set up for tax exemption but does not adhere to the rules and regulations set up for them.
1. One fallacy of non-profit incorporation is that it needs to be set up in the state in which it wants to do business. At times this is not followed and incorporation takes place in one state while business is done in another.
2. Another fallacy which is quite common among non-profit incorporations is that they cannot issue any stock or pay dividends and cannot share the profits among the directors.
3. A third common fallacy is that of “Founder’s Syndrome” which occurs when the organization works based on the whims and fancies of the owner (or founder) rather than based on the mission of the organization.

What is the code of ethics in the concept of business incorporation?

Business incorporation is the development of a new corporation serving as a business under the laws of the state and country. This corporation can be a non-profit organization, or a profitable organization. With the forming of a new business corporation, there remains associated the code of ethics that the corporation usually maintains to provide its best business services to its clients and customers. Business ethics are moral principles that are applied in the corporate and commercial world to provide guidelines to all employees of the organization for acceptable behavior throughout their policies and strategies.

Is the Corporation a Legal Entity?
The first code of ethics for the business organization is that whether the organization is a legal entity or not. Being the owner of a business corporation you are required to file the articles of incorporation declaring the address of your organization, the names of the vice presidents and the shareholders, the number of stocks the organization hold, and the name of the partners if any. The law usually considers an organization as a person who has a distinct personality and thus it demands morality from the corporation. Filing of articles of incorporation is the first step to give your organization a legal entity.

Employee, Employment and Business Ethics
Your organization being a small or a large publicly traded one requires that it follow the laws for fair terms of employment. Under the U.S. jurisdiction, an employment relationship is usually governed by the at-will principle. The fair judgment from the employer is generally expected by employees of the organization. The employer also holds authoritative powers to dismiss any employee without prior notice under an at-will doctrine. The violation of laws maintained by the organization also results in the termination of employment.
Each corporation has its own ethics policies. Corporations usually choose the course of highest integrity while maintaining the codes of ethics and moral principles. Every senior and junior employee of the organization is expected to deal fairly with each other and also maintain a good relationship with the corporation’s customers, competitors, suppliers and even other third parties. Employees who deal unscrupulously and profit at the cost of violations of the law are not tolerated by any corporation.

Business Ethics and the Government Rules
The corporation is solely responsible for maintaining government rules, laws and regulations as applicable to the business. Local customs and traditions are subject to change from place to place. So, it is important for a corporation to recognize this and conduct their workflow accordingly.

What exactly are the articles of incorporation?

The articles of incorporation or the certificate of incorporation also called the corporate charter is the basic deed of the corporation that embodies the primary rules that govern the management of a corporation. These articles are filed with the state or any other regulatory authority or agency. This is usually known by this name in the United States, whereas in the United Kingdom, these are known by the name of ‘articles of association.’
Each state bears its own system of authorization of articles. To begin the process of filing and getting approval of articles of incorporation the process begins with the office of the Secretary of State. The Articles of Incorporation give a company legal recognition as a corporation. Under some jurisdictions, an official certificate of incorporation together with a duplicate of the articles is issued to the claimant before the business is given legal status as a corporation.
Information provided by the articles of incorporation
The articles of incorporation of any legal organization bear the following information:
• The name of the corporation. This name has to be unique and must not match any other corporation or organization in that particular jurisdiction. Words like ‘incorporated’, ‘limited’, or ‘corporation’ are also associated with the name of the organization and is considered as a ‘flag’ to indicate that the organization maintains a limited liability and works as a corporation rather than an individual or partnership organization representing unlimited liability.
• The names of the board of members or persons who have organized the corporation are also endorsed in the articles of incorporation.
• It has to be declared in these articles as to whether the corporation is a ‘for-profit’, that is, a stock corporation or a non-stock corporation implying mostly the ‘not-for-profit’ organizations.
• It has to be mentioned whether the corporation is bearing a permanent existence or is operating for a limited period of time.
• It is also important to include the registered office address in the articles of incorporation. This is necessary in case legal papers need to be served to the corporation in hours of urgency.
• The name of the initial directors of the corporation must be endorsed in the document. In some cases, the registered agent or the incorporator serves as the director of the corporation.
• Sometimes, the articles of incorporation also contain the purpose for which the corporation has been built. Some jurisdictions also allow corporations to serve any lawful purpose under the state laws.