One of the most important and sometimes challenging steps of starting a nonprofit is choosing a name. Nonprofit tax expert Philip Hackney answers questions about choosing a legal form for your organization. Read more to learn how to protect your name, and your organization.
Choosing a legal form for your organization is step one of getting your nonprofit off the ground. How are you going to form this organization so that it has a legal status that you can count on, gives you the protection you need, and is flexible and functional for what you have chosen to do?
First, you can actually be an unincorporated association. While some do, not every state has an unincorporated association act, which “governs all unincorporated nonprofit associations that are formed or operate in a state that adopts the act (www.uniformlaws.org).” D.C. has an unincorporated association act and your nonprofit is probably in a better situation if you have that. If you’re getting any kind of sizable money coming through your organization, you don’t want to be going out unincorporated because you can be liable for the acts of this organization. It’s pretty much like you’re a partnership.
Also, you can be sued. You don’t want that. If you’re running a little club to talk about poems and you get together and you bring in $200 during the week to use to pick up some bagels or food to munch on, you can be an unincorporated association. But if you’re going to do something more significant, you want to be thinking about one of these others options.
The charitable trust is probably the easiest thing to form. It is done differently in each state, but they’re all really easy to form. You fill out a thing saying: “I so-and-so am donating my money to this purpose.” You’ve got to talk to an attorney if you’re going to do it, but there’s no filing with the Secretary of State. Once you create this thing, you’ve got a trust.
If time is of the essence, and the primary thing you want this thing to do is deliver money to people, you can get a charitable trust going pretty quick. In fact, in crises like 9/11 or Katrina, attorneys were using things like trusts to get money really quick to people. This is a vehicle that you might think about for that.
The most usual organization is the nonprofit organization by far. Here in the U.S., it’s the most flexible one out there. It comes with a little bit more complexity, but you can file an articles of incorporation with your state pretty easily and create the nonprofit corporation. Most importantly, it gives you liability protection. It’s a flexible vehicle that allows you to function.
You can form a nonprofit corporation with relative ease. There’s some cost depending on the state., but it’s relatively easy to file and comply with it. You’ll create some bylaws that tell you how to operate your organization.
Generally, with those three, you can qualify as a 501(c)(3) organization, but you can’t qualify as an individual and you can’t qualify as a partnership. There are LLCs that you can use under certain, much more sophisticated situations. Consider all of these legal form options for starting your nonprofit organization.
Hopefully this helped clear up some of your questions about choosing a legal form for your organization…