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NARRATOR: The term non-profit describes groups that are bound together by a desire to achieve a mission. When we think about nonprofits, they're actually all around us. They can be recycling programs, beach cleanups, animal rescues, religious organizations, and even educational institutions. They are any organization that wants to change the world. Nonprofits can be unincorporated-- so think about a group of kids selling lemonade or candy to fund a school trip-- or a formal nonprofit corporation that submitted the required documents to the state and federal government.

So when we think about all of the different business structures that exist, there are many options to choose from. Sole proprietorships, partnerships, limited liability corporations-- or LLCs-- S corporations, C corporations, B corporations, and of course, nonprofit corporations. The big decision about whether or not to incorporate typically boils down to two reasons. First is the avoidance of personal liability. This means that you cannot be sued or go into personal debt because of issues that you run into with your organization.

It protects you from personal damages. The second is taxation. And when it comes to a nonprofit corporation, that's a big benefit. A nonprofit corporation is an organization that's mission is to serve the public interest, and that has filed incorporation papers with the state. Because the nonprofit corporation works for the public good, it's exempt from paying state and federal taxes. So the organization itself can avoid those taxes, and secondly, donations made to a nonprofit are tax deductible for the donor.

This IRS status is called a 501(c)(3). Nonprofits are sometimes referred to as the "third sector," because they live between the public and private sectors, and have characteristics in common with both. Nonprofits are also governed differently than for-profits and have a different structure, including a board of directors or board of trustees, which is responsible for keeping the organization on track and legally bound to doing what is in the best interest of that organization.

Another unique aspect of nonprofits is their funding model. Nonprofits can get funded by donations, grants, membership dues, or fee-for-service. So that's it. Nonprofits, in summary, are mission-driven, not profit-driven. Also, to become an official nonprofit, you need to submit your documentation to the state to be officially incorporated. Also, in order to keep that status, you need to be governed by different rules.

And most importantly, a non-profit works towards changing the conditions in the world. Thanks as always for watching our videos. Please make sure you subscribe and follow us on YouTube, Instagram, LinkedIn, and check out our podcast-- "The Nadleman Nonprofit News--" on Apple or Spotify.