Difference Between a Benefit Corporation and a Nonprofit Organization
Form a Public Benefit Corporation NowBenefit corporations and nonprofit organizations are both commonly associated with purpose-driven work, but they are not the same. While each can be used to support a mission, they differ in how they are structured, taxed, owned, funded, and regulated. Understanding these differences is important for entrepreneurs and mission-driven founders who want to choose the right structure.
What is a Benefit Corporation?
A public benefit corporation is a type of for-profit business that is legally structured to pursue both financial success and a positive public impact. Unlike a traditional corporation, which typically focuses primarily on maximizing shareholder value, a benefit corporation may consider how its decisions affect employees, customers, communities, or the environment. This structure allows business owners to build a mission-driven company while still earning profits and attracting investors. Benefit corporations are often used by companies that want their social or environmental purpose built directly into their legal framework, rather than treated as a separate marketing or charitable initiative.
What is a Nonprofit Organization?
A nonprofit organization is an entity formed to serve a specific mission rather than generate profit for owners or shareholders. Nonprofits are commonly created for charitable, educational, religious, scientific, literary, or community-focused purposes. While a nonprofit can earn revenue, that money must generally be used to support the organization’s mission, operations, programs, or services. Unlike a benefit corporation, a nonprofit does not have private owners who receive profits from the organization. Many nonprofits also apply for tax-exempt status, which may allow them to avoid certain taxes and receive tax-deductible donations, depending on their classification.
Mission & Purpose
The main difference between a benefit corporation and a nonprofit organization is how each balances its mission and its money. A benefit corporation is designed to pursue a public benefit while still operating as a for-profit business. Its mission may influence business decisions, but the company can still earn profits and distribute returns to shareholders. A nonprofit organization, by contrast, is formed primarily to serve a public-focused mission. Any revenue it earns generally must be reinvested into that mission rather than distributed to private owners.
Ownership Differences
Benefit corporations and nonprofits also differ significantly in how they are owned and managed. A benefit corporation is owned by shareholders or business owners, similar to a traditional for-profit company. These owners may have voting rights and will often receive profits based on the success of the company. A benefit corporation is typically managed by directors and officers who must consider both financial interests and the organization’s stated public benefit.
A nonprofit organization, on the other hand, does not have private owners or shareholders. Instead, it is usually governed by a board of directors or trustees who oversee the organization’s mission and finances. Because no individual owns the nonprofit, its assets must be used to support its mission rather than benefit private individuals.
Tax Treatment
A benefit corporation is a for-profit entity, so it is typically subject to business income taxes. Depending on how the business is structured, profits may be taxed at the corporate level, passed through to owners, or taxed when distributed to shareholders. However, the public benefit aspect of their operations may provide certain tax incentives or advantages.
A nonprofit organization generally qualifies for tax-exempt status if it meets certain requirements and receives approval from the IRS. Tax-exempt nonprofits generally do not pay federal income tax on income related to their approved mission. However, they may still owe taxes on unrelated business income, payroll, property, or other taxable activities.
Accepted Jurisdictions
While nonprofit organizations are generally recognized throughout the United States, benefit corporations are only available in specific jurisdictions that have adopted the appropriate laws. This means a business cannot form as a benefit corporation in every state unless that state specifically recognizes the structure. Delaware is one of the most important jurisdictions for this type of entity. Under Delaware law, a public benefit corporation is a for-profit corporation intended to produce a public benefit and operate responsibly and sustainably.
Forming a Nonprofit or Benefit Corporation
The formation process for a nonprofit organization and a benefit corporation starts at the state level, but the requirements differ. A benefit corporation is formed much like a traditional for-profit corporation. The business usually files a certificate or articles of incorporation with the state, names shareholders, appoints directors, and includes required public benefit language. In Delaware, for example, a Public Benefit Corporation must file a certificate of incorporation and identify its specific public benefit purpose.
To form a nonprofit, organizers typically choose a qualifying mission, file formation documents with the state, appoint a board of directors, adopt bylaws, obtain an EIN, and then apply for federal tax-exempt status if desired. For 501(c)(3) recognition, the IRS generally requires Form 1023 or Form 1023-EZ, depending on eligibility.
You can also form a Delaware benefit corporation or nonprofit corporation online with Harvard Business Services. Inc.
Comparison Chart
For a quick summary of the similarities and differences between a public benefit corporation and a nonprofit, we’ve created an easy comparison table.
| Benefit Corporation | Nonprofit Organization | |
| Mission | To operate a for-profit business while pursuing a stated public benefit. | To serve a charitable, educational, religious, scientific, or other mission-driven purpose. |
| Profits | For-profit entity. May distribute profits to shareholders or reinvest them into the business. | Nonprofit entity. Must generally reinvest surplus revenue into the organization’s mission. |
| Ownership | Owned by shareholders and business owners. | There can be no private owners or shareholders. |
| Management | Managed by directors and officers, similar to a traditional corporation. | Governed by a board of directors or trustees. |
| Tax Treatment | Usually taxed like a regular for-profit business. | May qualify for tax-exempt status if it meets legal and IRS requirements. |
| Jurisdictions | Only recognized in jurisdictions with benefit corporation or public benefit corporation laws. | Generally recognized across the U.S., though rules vary by state. |
FAQs
Can a nonprofit corporation make a profit?
A nonprofit corporation can generate revenue and even have money left over after paying expenses. However, unlike a for-profit business, it cannot distribute those profits to owners, shareholders, or insiders. Any surplus revenue must generally be reinvested into the nonprofit’s mission, programs, operations, or future activities.
Are benefit corporations tax-exempt?
Usually, no. A benefit corporation is still a for-profit business entity, even though it has a social or environmental purpose. It is generally taxed like a traditional corporation or other for-profit entity. Simply forming as a benefit corporation does not give the company federal tax-exempt status.
Can a benefit corporation accept donations?
A benefit corporation can accept financial support, but those contributions are usually not tax-deductible charitable donations. Because benefit corporations are for-profit businesses, they generally do not qualify for the same donation treatment as tax-exempt nonprofits. Supporters may still contribute money, but it is typically treated more like business income.
Benefit Corporation vs Nonprofit: Which is Right for You?
When it comes to public benefit corporations and nonprofits, one structure is not necessarily better than the other. A benefit corporation is often suited for those who see business as a vehicle for both economic activity and public benefit. A nonprofit, by contrast, is typically better suited for work centered on advocacy or community impact without private ownership. Before choosing, consider what you want the organization to accomplish, how it will be funded, and who, if anyone, should benefit financially from its success.
When you’re ready to form a benefit corporation or nonprofit corporation of your own, be sure to work with Harvard Business Services, Inc., and we’ll be sure to provide support every step of the way.
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