Non-profit organizations are afforded several benefits by law because of the charitable nature of their business. Certain tax exemptions and funding sources are in place to aid these organizations and further their philanthropic missions. While setting up a non-profit organization requires several steps, the process is straightforward, and the benefits usually greatly outweigh the effort that goes into the registration process.
The law distinguishes between unincorporated non-profit associations and non-profit corporations. While both may operate in the same manner and receive tax breaks, unincorporated associations do not have the same liability protection and may operate at a higher risk to the officers of the organization. If the operations could in any way lead to financial trouble, it is usually a good idea to incorporate the non-profit to provide protection for the individuals at the helm.
In the case of a legal judgement against an incorporated non-profit, officers or directors may not be held personally or financially liable in most cases. However, if a wrongful act was committed by one of the leaders, they may not be entitled to the same protection. Similarly, personally guaranteed obligations or funds that have been co-mingled are not eligible for protection under the incorporated status. Finally, if fraud or recklessness by an individual officer causes harm, he or she may still be held personally accountable.
The State Department or the Secretary of State’s office is traditionally responsible for the registration of non-profit organizations. Filing articles of incorporation in the case of an incorporated non-profit is completed through this department. Forms are generally easy to fill out and require basic information regarding the name of the organization, list of directors, contact information and purpose of the association.
The federal government and Internal Revenue Service recognize several different non-profit classifications and offer tax-exempt status to most organizations. Organizations can apply for a specific designation, known as a 501(c)(3), which allows donors to claim tax deductions for contributions. In order to qualify for this status, the organization must have one of several specific purposes:
While tax exemption is usually beneficial, in some cases donors are not concerned with claiming a deduction, or the income of the organization is still considered taxable. In these instances, applying for tax-exempt status is not advantageous.
All types of non-profit organizations must write a set of bylaws to govern their association. These regulations determine the rules for leadership within the company and other important standards:
- How directors and officers will be elected
- The number of people serving as officers and directors
- Term length for directors
- Meeting structures
- Quorum requirements
Once established, the company must use the bylaws to guide daily operations. Changes to these rules normally necessitate approval by at least two-thirds of the acting directors.
Directors and Board Meetings
States set guidelines regarding the number of directors who must serve on the board. Some allow a minimum of one, while others require at least three. These people are tasked with making sure the organization operates according to its mission and must set a plan in place for meeting goals.
Additionally, they complete several other essential jobs. Finances and financial statements must be overseen by the board, and this group will also hire an executive director to run the daily operations of the association. Board members are volunteers, who must not be compensated for their efforts.
At the first board meeting, bylaws must be adopted, officers should be elected and a set of resolutions must be put in place. These resolutions need to allow the association to admit members, set up financial accounts and begin operation. Minutes should be kept during this and any subsequent board conferences to chronicle any decisions.
Once the structure of a non-profit is in place, the company can go forward, enjoying tax advantages and seeking to improve the world according to their purpose and mission.
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