501(c)3 is a type of incorporation for organizations that intend to run a nonprofit enterprise. A non profit or not for profit organization has several advantages, most notably from the perspective of taxes, but there are certain stringent regulations as well. A non profit organization cannot be run like a for profit enterprise. Hence, there are 501c3 pros and cons.
List of Pros of 501c3
1. Tax Deductions
Organizations registered under 501c3 provisions will be deemed as public charities and would hence be under the special purview of Internal Revenue Service. The Internal Revenue Service Code 501(c)(3) provides federal tax exemption pertaining to corporate income tax. All donations to the company and the donations made by the charity are deductibles. The same code also allows for exemption under state taxes. Most local taxes are also exempted.
2. Eligibility for Grants
Not for profit or non profit organizations are permitted to accept donations and they can also solicit donations from private individuals and organizations. 501c3 organizations can raise money from the public. Also, there are state and federal grants for such organizations but there would be grant and program specific eligibility criteria.
3. Separate Entity
Unlike proprietorship companies or entities, a not for profit organization registered under the 501c3 code will be a separate entity. The owners or individuals promoting the organization will not be treated as the same entity as the organization.
4. No Personal Liability
Being a separate entity, the organization stands on its own with its credits and obligations, funds and assets. The organization is not an extension of the individual or individuals who own it. In case of defaults or any legal, financial and other issues, the owners or promoters are not personally liable, especially in financial matters. There is substantial limited liability, very similar to a private limited or limited liability enterprise.
List of Cons of 501c3
1. Complicated Registration Process
Registering a non profit organization under the code is not as simple as registering a proprietorship company. The organization will be eligible for many benefits at the state and federal level. Many laws and obligations that are applied on other enterprises will not be thrust upon 501c3 associations or organizations. Hence, the registration process is long, requires money and is complex.
2. Need of Professionals
Not only is the registration process complex, the continuous maintenance of paperwork and filing them from time to time is also painstaking. You would need a perennial attorney, accountant and other professionals based on your needs and the type of organization you wish to set up.
3. Complex Laws
A not for profit organization is not above the law or beyond legalities. There are complex laws that clearly state how such an organization must be operated. There are special laws applicable specifically to charities and non profits.