When you’re establishing an organization, you’ll need to choose the right type of business formation to support your long-term growth so you can share your passions and ideas with the world. And one of the most effective ways to do this is by establishing a corporation. But you’ll also need to decide if that corporation will be charitable or for-profit. Though both types of corporations may seem similar on the surface, there are a few key differences that you’ll want to understand before you meet with an Albany business lawyer to get things set up. 

charitable and non-charitable

Their Main Purpose

The biggest difference between the two types of corporations is their reason for operating. Charitable corporations exist to benefit the community at large by providing services, products, and other similar items to individuals in need. In most instances, those individuals won’t pay for the services or goods received. For-profit corporations exist to generate revenue and profits for the key stakeholders by providing services or products that people purchase.

How They’re Taxed

For-profit corporations are taxed as businesses. This means they have to pay taxes on the profits and revenue generated throughout the year. Charitable corporations are often exempt from paying most taxes since they’re operating to benefit the community at large rather than to generate tons of revenue. Keep in mind that trying to incorporate a business as a charitable organization just to avoid taxes is illegal. 

How They’re Funded

Charitable corporations are funded largely by donations, grants, sponsorships from for-profit organizations and corporations, and other similar methods. They may occasionally fundraise by offering merchandise for sale or auctioning off donated items. Some charitable corporations may also use crowdfunding to gain financial support from people outside the community. For-profit corporations are often funded by lenders and investors who see the profit potential in the services they provide.

Their Staff

For-profit corporations must hire employees and follow strict labor laws regarding pay, benefits, and other rights for workers. These employees must be paid for their services and are entitled to basic workers’ compensation if they’re injured on the job. Charitable corporations operate with a mix of volunteers and employees in charge of running the organization. The employees will be paid for their services but the volunteers work for free to support an organization they truly believe in. Keep in mind that volunteers are also entitled to a safe working environment.

Choosing the Right Organization Type Can Make All the Difference

Making the decision to open either a charitable corporation or a for-profit corporation is a huge step toward bringing your vision to life. But you’ll want to make sure you’re choosing the right formation if you want to set yourself up for success. While you can go it alone, doing so can result in serious delays in you opening your doors for the first time. The best thing you can do for yourself and your new corporation is to work with an experienced Albany business lawyer. 

Sarah Gold has years of experience helping for-profit and nonprofit organizations get up and running quickly. Contact her to schedule an appointment today.