What Are The Biggest Pitfalls of Not-For-Profit Corporate Structures?
The downfalls of a non-profit are that of all the business entity structures, a nonprofit is the most cumbersome, time-consuming, and expensive to create. Non-profits need to get approval from the IRS that they have a mission that warrants a nonprofit status. The IRS scrutinizes a nonprofit more in-depth than a normal corporation, so they should keep the detailed records of annual filings for the state and the IRS.
Personal control is also generally limited due to all the laws and regulations surrounding nonprofits. A nonprofit’s finances are open to public inspection because they are getting tax exemptions. The members and shareholders of a nonprofit need to make sure they are not involved with the organization for personal gain if they are invested in the nonprofit. The lack of ability for personal gain is really the core of a non-profit, and if any of the founders or stakeholders are seeking financial gain from the formation of the corporation, a non-profit may not be the correct format.