Nonprofit Organizations

Nonprofit Incorporation

At some stage almost every volunteer group considers incorporating as a nonprofit. Incorporating is a state process. Nonprofit corporations are independent organizations that have a public-oriented purpose, defined by state law. They are different from for-profit corporations because they must spend their funds to fulfill the organization’s lawful purpose. Funds cannot be used to personally benefit members. Even though they have nonprofit status, some nonprofit corporations are large organizations with multi- million dollar budgets.

Nonprofits are clearly recognized by law as responsible and permanent organizations. They can be held liable for damages in the same way that an individual can. In contrast, unincorporated associations are more loosely organized and their members can be held personally liable for the actions and debts of the association.

Why Incorporate?

There are several advantages to incorporating your organization as a nonprofit:

• Formal Organization: Incorporated organizations must adopt more formal operating procedures. For example, board members must follow the organization’s by-laws, hold regular meetings, maintain minutes, and keep the state informed of changes in board officers.
• Name Protection: The incorporation process registers and protects the organization’s legal name.
• Tax-exemption: Becoming a nonprofit organization is a required first step to applying for tax-exempt status from the federal government. Becoming incorporated is not the same as becoming tax- exempt. Getting tax-exempt status is a separate application process.
• Limited Liability: In most circumstances, regular members, board members, and employees cannot be held personally liable for a corporation’s debts and activities. The corporation itself is liable while members’ personal funds and assets are protected. However, members can be held liable for intentional negligence and misappropriated funds.
• Institutional Recognition: Foundations, government agencies, and banks are often more willing to do business with incorporated nonprofits than unincorporated organizations. They recognize nonprofit corporations as legally responsible and more likely to meet their obligations. In fact, many institutions will not do business with non-profit organizations unless they are incorporated.
• Public Recognition and Credibility: The general public perceives most nonprofit corporations as responsible, permanent and active. It will be more likely to support a nonprofit corporation’s activities and programs. The media are more willing to publicize incorporated organizations.

The Law Office of Daniel R. Grabianowski has extensive knowledge of both the legal challenges that nonprofits face and the day-to-day workings of not-for-profit corporations. We can help our nonprofit clients with everything from applying with the IRS for tax-exempt status to obtaining grants and developing fundraising strategies. We also have experience with charitable giving issues, incorporation and bylaws, fiscal agent agreements and rental agreements.