A Non-Stock Corporation is basically a corporation that does not issue shares of stock. It can be formed as either a for-profit or non-profit corporation. Since the Non-Stock Corporation has no shareholders, it is owned by its members – meaning a member-owned corporation that does not issue shares of stock. The qualifications for membership and members are defined in the corporation by-laws. There can be different classes of members such as voting and non-voting members.
Can a Non-Profit Business be a Non-Stock Corporation?
A non-profit corporation is non-stock by definition, since the purpose of the non-profit corporation is not to pay shareholder dividends. Non-stock, Non-profit corporations are without any profit motive and are formed to provide a service to their members.
The Non-Stock Corporation has become synonymous with the term Non-Profit, because Delaware (like many states) has designed the certificate of incorporation (or articles) of this entity to facilitate the application for tax exemption.
When forming a non-profit corporation, it is necessary to include language agreeable to the IRS and pertinent to the specific exemption you will be requesting in the articles of incorporation. Actually, Delaware requires the disclosure of non-profit intentions in the certificate of incorporation at the time of filing. Therefore, it is wise to plan in advance as to the structure of your Non-Stock corporation and the IRS 501(c) tax exemption section you wish to apply under to determine the correct wording.
Can a For-Profit Company also be a Non-Stock Corporation?
A non-stock, for-profit corporation may be formed for a single, short-term purpose or a specific transaction. A good example would be the corporation is used to build an office building or condominiums. The owners or developers have no interest is selling shares, and the corporation is dissolved when the finished property is sold.
Please note that only the IRS can determine whether your corporation qualifies for tax-exempt status, and grant such status. The act of forming a Non-Stock Corporation does not constitute having non-profit tax exempt status approved.
Non-Profit status is typically used by organizations which plan to apply for tax exemption under section 501(c)(3) of the IRS code. The process starts with IRS Form 1023, Application for Exemption, which must be filed within 15 months of formation. Nonprofit corporations qualifying under this section enjoy exemptions from federal, state, and local taxes. In addition, donors can write off their contributions on their individual tax returns. The Internal Revenue Service allows organizations to file for tax-exempt status under section 501(c)(3) if they fit within identified categories. The organization must: be dedicated to religious, charitable, scientific, testing or public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.
The IRS defines these categories broadly, but do not expect them to approve all applications. For example: scientific organizations must perform research in the public interest, and educational organizations cannot espouse a particular political viewpoint.
There are additional applications for a Non-Stock Corporation which include civic leagues, labor organizations, business leagues, social and recreational clubs, fraternal organizations, trade associations, political associations, and homeowners associations, These organizations may be eligible for tax exemption under a different section of the IRS 501(c) code, and require different applications and filing/reporting requirements.
Always Consult a Professional
Non-stock incorporation for non-profit federal tax exemption involves a good amount of complex legal and taxation issues that should be undertaken only with the assistance of an experienced attorney and/or a CPA tax expert. These professionals have the training and experience to oversee the entire process, and ensure that the organization meets all relevant statutory requirements.
Interested in forming a business? Learn more about the benefits of incorporating in Delaware, including advantageous tax laws. If you’ve decided Delaware is the right state for your business, Advantage Delaware offers an expedited same-day formation service.