Non-profit corporations are often referred to as 501(c) organizations, because section 501(c) of the Internal Revenue Code is what grants non-profit corporations their tax-free status. Most states allow for the creation of such non-profit corporations, which allow charities and similar entities to receive tax-exempt status with state tax agencies and the IRS. Specifically, to qualify for non-profit corporate status the purpose of the business must be charitable, religious, literary, scientific or educational.

You should understand that while an investor can take his or her money back from a for-profit corporation, any investment made into a non-profit corporation is irrevocable – it’s a donation that you cannot get back. In fact, when a non-profit corporation is dissolved (i.e., shut down), any leftover assets do not go to its owners, but must generally be given to another non-profit corporation.