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Nonprofits Law

What is a nonprofit?

"Nonprofit" can mean different things, so it is helpful to understand what that term might mean in different contexts.

  • Nonprofit vs. for-profit corporation.  One way to think about what a nonprofit is is to distinguish nonprofits from for-profit corporations.
    • For-profit corporations can pay dividends (such as cash or stock dividends) or make other distributions of income or assets to its owners, who are usually called shareholders or stockholders.colored box with text - nonprofits can be: corporations; limited liability companies, unincorporated associations
    • Nonprofits, on the other hand, cannot (by statute or governing documents) pay dividends or make other distributions of income or assets to its owners, who are usually called members.

Nonprofit corporations are a common form of entity for nonprofits, but nonprofits can also exist in other forms, such as a limited liability company or an unincorporated nonprofit association.  Similarly, corporations are a common form of entity for for-profit organizations (i.e., businesses), but businesses can also exist in other forms, such as sole proprietorships and partnerships.

  • Nonprofit vs. tax-exempt organization.  Many people use the term, "nonprofit," to refer to tax-exempt organizations.
    • Tax-exempt organizations are organizations that are exempt from paying federal income tax.  Examples include charitable organizations, credit unions, educational institutions, labor organizations, and religious organizations.
    • Some tax-exempt organizations are also exempt from paying state income tax (and, in some cases, other types of taxes, such as property taxes).

Like nonprofits, tax-exempt organizations can exist in a variety of forms, such as a nonprofit corporation or a trust.

Not all nonprofits are tax-exempt.  For example, many homeowner associations are organized as nonprofit corporations, but are not tax-exempt.

One effect of being a nonprofit that is also a tax-exempt organization is that tax-exempt organizations are subject to additional regulation under the tax laws.

  • Nonprofit vs. not-for-profit.  Some, but not all, distinguish between nonprofits and not-for-profit organizations.
    • For those who distinguish between nonprofits and not-for-profit organizations, the distinction is that not-for-profit organizations may pay dividends to its owners, which a nonprofit cannot do.  However, not-for-profit organizations are also different from for-profit organizations because the primary purpose of a not-for-profit organization is not to generate a profit for its owners.  For example, a credit union is not a nonprofit because it can pay dividends to its owners (i.e., the members of the credit union), but it is also not a for-profit corporation because its primary purpose is not to generate a profit for its owners.  A credit union is a special form of entity (i.e., not a nonprofit corporation or a business corporation) that some consider a "not-for-profit" organization because its primary purpose is to operate for the mutual benefit of its owners.
    • Some may also distinguish "nonprofit" from "not-from-profit" on the basis that "nonprofit" describes a type of organization whereas "not-for-profit" describes an activity (and not a type of organization) under certain tax rules.
    • Some make no distinction between nonprofits and not-for-profits.  For example, the Washington Nonprofit Corporation Act defines both a "not for profit corporation" and a "nonprofit corporation" as "a corporation no part of the income of which is distributable to its members, directors, or officers."

How this guide is organized

The purpose of this guide is to provide information about resources for nonprofits primarily from a legal perspective.

  • General resources
    • resources for finding out about nonprofits (e.g., location, mission, financial data)
    • books and other material with overviews
  • Key topics for newly created nonprofits: formation, governance, and tax exemption are key legal issues for nonprofits.
  • Topics nonprofits share with other organizations: employment, labor law, and intellectual property law issues
  • Resources that are specifically for Washington nonprofits.

Research Guides