What are the benefits and limitations of a tax-exempt, nonprofit corporation?

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One of the primary benefits of forming a nonprofit corporation is that the
corporation’s members and directors are generally shielded from personal liability
(unless the member or director acts in bad faith, without utilizing ordinary care, and
in a manner the member or director cannot reasonably believe to be in the best
interest of the corporation). See TBOC §22.221. It may also be advantageous for
an organization to incorporate as a nonprofit so that it can be eligible to receive
government or community development loans and grants, which are often reserved
for nonprofit organizations.
To qualify for federal tax-exemption under Section 501(c)(3) of the Internal Revenue
Code, a nonprofit must be organized and operated exclusively for one or more of the
following purposes: religious, charitable, scientific, testing for public safety, literary,
educational, or the prevention of cruelty to children or animals. The nonprofit
cannot be organized for the purpose of financial profit for its members or directors,
although they can be paid a reasonable compensation for their work. Section
501(c)(3) nonprofit organizations are absolutely precluded from engaging in partisan
political campaign activities and their lobbying activities are heavily regulated. Other
types of organizations that receive federal tax-exemption, such as Section 501(c)(4)
organizations (i.e., civic leagues), are beyond of the scope of this publication.