I have a start-up that could potentially qualify for non-profit 501(c)(3) status (an educational Q&A website for a specific branch of Psychology). The business would incur some debt and have expenses. The income would come through the sale of ad space and institutional classifieds (mostly job postings, internships and research opportunities). It would of course be some time before it makes any profits to speak of.
Is there any real benefit to incorporating as a non-profit versus, say, and LLC? I currently do not have any outside investors and would likely have an equal partner at the outset.
If it's a non-profit, you don't own it. You can never sell it or "cash out" in any other way. There is no equity position for you.
The paperwork and compliance issues are fairly straightforward, but can quickly get complex in a number of ways, for example if you are mixing in business that isn't clearly related to the charitable purpose.
The "Non-profits for Dummies" book is quite good at explaining all the issues.
Whatever you think you've figured out, check everything with a tax professional who understands non-profits.
Darius - co-Founder & Board President, Square Peg Foundation - where Everyone Fits.
Non-profits have many great abilities however, and really can grow exponentially with working them. You have no taxes to pay, and you have in some ways infinite currency in the ability to grant tax credits for many donations. You would be amazed what you can get donated, stocks, real estate, other holdings, etc.
Of course this all depends on the non-profit and its objective.
A non-profit doesn't make much sense out the gate. Setting aside the issue of whether your venture qualifies, there's so much more paperwork and compliance issues that you'll need to deal with. Plus, you probably won't make any big profit after all the expenses, so it won't really matter. And if you do make profit - you can always find ways to spend, from giving to charity, hiring staff, buying stuff, etc.
Plus, you can always create a non-profit foundation later and transfer things to there.