A 501(c)3 is type of incorporation that is used to set up a charitable corporation. A charitable company is a type of company that is set up with the intention of providing a service to the community, rather than making a profit. Incorporating a company makes it a legal entity, responsible for its actions in the community. This is important, as it removes a great deal of the responsibility from the person who is starting the company. If you start a 501(c)3 company, you want the legal liability for possible damages to be the responsibility of the 501(c)3 corporation so that your personal possessions are safe from creditors.
Rules for forming a 501(c)3 corporation vary across every state, so legal and financial advice should be sought before using a 501(c)3 incorporation. Costs for forming a 501(c)3 corporation vary with the size of the corporation, increasing with the size of the organization. The 501(c)3 designation is a reference to the section in the Internal Revenue Code that deals with charitable corporations. This is a very dry document, which may explain why such an unwieldy and unimaginative name is used for this type of organization.
501(c)3 corporations are exempt from paying income tax. In return for this exemption status, a 501(c)3 corporation may not take part in election campaigns in an attempt to cause one candidate to be elected in preference over another. 501(c)3 corporations are also prohibited from providing any monetary or material benefit to the principle or principles running the organization. These restrictions are for the entire life of the organization.
A corporation is either a 501(c)3 organization or it is not. It cannot change its function. If the organization ceases to be a nonprofit charitable organization, than the organization must be dissolved.
501(c)3 corporations are an important means to allow individuals to set up organizations with the intention of the betterment of the community at large, without undue risk to personal wealth. 501(c)3 corporations also allow charitable organizations to grow to a sufficiently large size that they are able to cause significant change. In effect, the organization can grow beyond the individual who started the organization, and even outlive him or her.