Profit or Non-Profit

If you’re one of the millions of global entrepreneurs dreaming of starting a successful business. One of your first questions may be, “should I incorporate, or not?”

But wait. Doesn’t incorporation mean a heavier tax burden and mountains of paperwork? Maybe, but there are benefits to incorporating:

  • Your company can continue indefinitely, even after you pass away and you can transfer your ownership interest in the company to another individual

  • Your business will become much more attractive to investors

  • You and your personal assets are protected from any legal action against the company

Okay - so incorporation sounds pretty good... Next question: “Should I incorporate as a nonprofit and for-profit?”

If you want to strike it rich, you’re probably wondering, “Why on earth would I incorporate as a non-profit? I’m all about the profit!”

But hang on! The term non-profit is actually misleading. It doesn’t mean you won’t make profit! Let’s check out the key differences between nonprofits and for-profits.

Ask yourself, why are you in business? Are you in it for the lifestyle (i.e. wealth), or for fulfillment (doing good for society)? That’s a trick question because they are not necessarily mutually exclusive!

A nonprofit business (also called a not-for-profit) lets you share your talents and passion with the world. You do your thing, and your income (“revenue”) is paid through private donations, corporate sponsorships, government grants, and crowdfunding. Most of your revenue is recycled back into the company, so it can continue doing good (but yes, you do get paid).

A for-profit business also lets you share your passion and talents with the world, but you do it through sales of products of services that fill needs and solve problems. A for-profit can sell stock and pay dividends to stockholders. You get to choose whether to recycle income back into the company, or keep it for yourself and for your stockholders.

The short (and greatly simplified) story: if you can make the kind of living you want through sales of products or services, then incorporate as a for-profit. If that’s more challenging (such as if your contribution centers around the arts) then consider incorporating as a nonprofit. Either way, you can still “do well by doing good.” It’s just a different approach.

Dr Teresa R. Martin, Esq., is an attorney, speaker, business consultant and real estate strategist.