Pros and Cons of Starting Nonprofit and For-Profit Companies

In the world of business, there are two types of companies; those set up to make a profit and those designed not to make a profit. Nonprofit businesses have a number of benefits, including tax exemptions and limited liability, in addition to being on the receiving end of grants and deductible donations. Still, more companies choose to operate as for-profit businesses, with good reason.

You won’t get off scot-free from having to record your businesses transactions and activities, but running a company for profit entails much less red tape and paperwork than running a nonprofit company. A nonprofit business must file for tax-exempt status and must demonstrate that the company exists to benefit some aspect of society. This might entail hiring an attorney for the initial setup, and it will require extensive documentation and the filing of annual federal reports in order to maintain a nonprofit status.

When your company is run for profit, you get to make decisions affecting marketing, expenditures and the direction in which you want to take the company. Alternately, decisions are relegated to a board of directors if the company is a nonprofit. If the majority of the board doesn’t support your opinion, they can take the company in a different direction and you have no control over it.

If you’re in business to turn a profit, you’re free to donate to political campaigns for candidates you think will best serve your interests. If your company is a nonprofit, the laws in your state might restrict political donations and lobbying activities.

The Internal Revenue Service can audit your company if you’re running it for a profit, but if you’re a nonprofit business, members of the general public can request copies of your tax returns, and you must make your salary and the salaries of all employees available to the public.

The goals and mission of a nonprofit business might be excellent, but despite how many hours you work and toil to make the venture a success, you can only receive a “reasonable” salary. While this figure depends upon your qualifications, experience and job description, you must be able to prove that your salary is in line with the salaries of other employees in your area who perform similar duties. When you run your business to make a profit, nothing stands in your way of increasing your salary, but the amount of time and effort you’re willing to invest in the company.

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