Now that you have decided to start a non-profit organization, you must consider which legal structure you wish to use. The most common form of non-profit is the non-profit corporation, and later in this blog series I will explain how you can file for incorporation if you wish to do so. If you don’t want to go through the incorporation process, you can consider structuring your non-profit as either an unincorporated association or a trust.
Before you decide which structure is the best for you, consider the differences in choosing between the legal structures. The main reason that a non-profit chooses to incorporate is to protect the management from personal liability from lawsuits or debt. Depending on the type of work your organization will be doing, and the type of assets the organization will be buying or owning, chances are that you will want the legal protection of a corporation. A corporation is a separate legal entity that has the capacity to sue and be sued, to own property and to make contracts. But if the corporation cannot meet its financial obligations, the personal bank accounts of the people in charge of the organization will be protected. Another option for your non-profit is to form a limited liability company (LLC). A LLC offers legal protection similar to that of a corporation but is easier to form and manage.
Once you have engaged in a risk-assessment analysis for your organization’s activities and you have an idea as to how much liability you will be exposed to, you can narrow your entity choice options. If you find that there is some exposure to risk, but perhaps not enough to justify the effort and expense necessary to file for incorporation, you can also consider investing in liability insurance. Other options for minimizing liability include using waivers or operating under an umbrella group that has its own insurance policy. Or you can try to eliminate the risky activities.