A Non-Profit organization can be structured in several different ways. Depending on your organization’s liability risk, the type of activities your organization wishes to engage in, and the complexity of your finances, one of the following structures may suit you best:
Corporations
- A corporation is a separate legal entity that has the capacity to sue and be sued, to own property and to make contracts.
- A corporation must be registered with the state and requires the most amount of steps to be established or dissolved. The law that governs a corporation is extensive and clear compared to the law governing an unincorporated association.
- Members, directors and officers of a non-profit corporation are protected from personal liability for the debts of the corporation.
- For a detailed explanation of the types of non-profit corporations, please read our blog post entitled The Three Categories of Non-Profit Corporations.
Trusts
- A trust exists when a person (the trustee) holds legal title to property but is under an obligation to use or hold the property for a charitable purpose. A “charitable purpose” can be religious, charitable, scientific, literary, educational, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.
- A trust would be the best option if the organization is primarily intended to hold, manage, or distribute property.
Unincorporated Associations
- An unincorporated association is the least formal structure, and exists when two or more members with a common purpose mutually agree to engage in a lawful activity.
- An unincorporated association, like a corporation, can sue and be sued, enter into contracts, and acquire and hold interest in property.
- Unincorporated associations do enjoy some limitation on the liability of the management and staff of the organization, but the extent of personal liability is uncertain and depends on the nature of the situation and whether or not the individual assumed personal liability under the law.
LLCs
- The LLC structure provides personal liability protection for the directors and officers of a non-profit but is easier to file for and manage compared to a corporation.
- A non-profit LLC can file for federal tax-exempt status. However, an LLC will only be recognized as tax-exempt in certain situations, such as when the members are exempt organizations themselves. For this reason, the main uses of a non-profit LLCs are by exempt organizations for managing subsidiary and joint-venture activities, as well as for holding title to property.
A corporation is the most commonly chosen form for a Non-Profit, and next I will explain the different types of corporations your Non-Profit can incorporate as.
