Nonprofits engaging in business activities generally must have a local business license. This license is necessary for tax collection and legal operation within a specific jurisdiction.
Obtaining Necessary Licenses
First, nonprofits must incorporate in their home state. They then acquire a state business license, which must be renewed periodically. Additionally, local licenses—often referred to as tax registration certificates—are required and are issued by cities or counties.
Particular activities, such as soliciting donations or maintaining a local address, may require a local nonprofit license. While there are various regulations surrounding nonprofit operations, one constant is the necessity of a federal tax ID number (EIN) for hiring employees and other business needs. It should be noted that LLCs and nonprofits operate under different legal frameworks and classifications.
The Distinctions and Requirements for Nonprofits
Compared to LLCs, nonprofits have unique considerations. They must navigate the rules regarding the ownership of for-profit entities and reinvestment of surpluses. Bank accounts, the need for tax ID numbers, liability protections, and the inability to distribute profits as LLCs can, set nonprofits apart. Professional certifications can be beneficial in certain fields, though they are not required.
Local business licenses and tax ID numbers are essential for nonprofits. In some locations, additional registrations and fees or occupational taxes may apply, while others might exempt nonprofit organizations. Operating without proper registration can lead to citations, fines, and other penalties. Nonprofits must approach the relevant city authorities to ensure compliance and avoid legal issues.