Nevada law recognizes several types of business entities. Some of the most common are limited liability companies, corporations and partnerships. Each entity has certain advantages and disadvantages with regard to its formation, taxation and protections. Nevada also allows for the formation of nonprofit entities. Generally a nonprofit serves a charitable function, such as providing services to veterans or the elderly. Nonprofits offer many benefits for those who are engaging in such activities. The following is meant to provide a basic overview of the advantages and disadvantages to forming a nonprofit entity in Nevada. Read below and contact the attorneys at Connor & Connor to see how these differences could apply to your Nevada business.
Nonprofits generate revenue, just like any other business (should). They sell goods or provide services, pay employees and have overhead and expenses like any other business. However, because nonprofits generally serve a charitable function they are afforded certain tax exemptions that other businesses do not enjoy. However, nonprofits are also subject to certain restrictions that other business are not subject to. One major difference is that a nonprofit may not remunerate any shareholders or investors. Nonprofit businesses must retain any extra revenue earned in order to further their individual causes. In this vein, any exorbitant salaries or bonuses paid to employees may cause the non-profit business to lose this status and could result in harsh legal penalties.
As mentioned above, a nonprofit business will typically perform a public service. A few examples of such services are in areas such as religion, education, abuse prevention, science, public safety, the arts or charity. When a nonprofit realizes that it has accrued more revenue than its expenditure budget calls for, instead of distributing the extra amongst shareholders or investors, the nonprofit will reinvest into itself or the community it serves. Nonprofits are given certain tax-exempt statuses, as their primary concern is serving the community. The state and federal levels reward such behavior in their tax codes, by not holding them to the same standard as other companies. It is also important to note that state and federal regulations can vary dramatically from state to state.
Just like other types of businesses, there are also rules and regulations in place for a nonprofit business. The IRS strictly forbids campaigning for or against any political candidate or the endorsing of political candidates. This is to ensure that no political agenda is being funded in any way by federal grant money, regardless of how much the specific institution receives.
As far as lobbying goes, there are provisions for that. The IRS does allow for some lobbying, but “too much lobbying activity risks loss of tax-exempt status.” While this is a gray area, it does dispel the notion that a nonprofit business is not allowed to lobby at all. However, this is still a limited area for nonprofits, considering many major corporations in the United States spend billions of dollars every year while nonprofits are allowed only a small amount.
Connor & Connor, Business Law Attorneys
At Connor & Connor, we have a brilliant team of legal minds who specialize in Nevada business law. If you are interested in Nevada business laws and would like to know more about how a nonprofit business differs from other businesses, contact us today. We are here for all of your legal needs in the state of Nevada.