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Accountant says sole member corporation doesn't work?

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Accountant says sole member corporation doesn't work?

I am considering incorporating a nonprofit corporation for religious, educational and charitable purposes. I talked to my accountant about a “single member nonprofit” which I read about on your website. He told me that a single member nonprofit is not possible under our state law. He says that I need to have three board members and that if two of them are related it has to be five board members. Is that correct?

Your accountant is apparently confusing the role of “members” of a corporation, who have rights similar to those of shareholders of a business corporation, including the right to appoint and remove directors, with the role of the board of directors, who are responsible for the day-to-day operations of the organization.  A few states (including Pennsylvania) permit a corporation to operate with only a single director, but most require at least three, and some require some “independent” board members not related to the others.  What your accountant says about directors in your state may be accurate.

But I am not aware of any state law that requires at least three “members.”  Multi-institution health care systems often operate with a single member structure in which a “parent” organization is the sole member of the hospital, nursing home, MRI center, foundation, etc. to assure coordinated operations. Although it is not entirely clear that you can have a sole member in a church in states with separate provisions for religious corporations functioning as churches, you can probably still set up a sole member corporation to control the identity of those who serve as your board of directors.  For language on how that works, see Ready Reference Page:  “Sole Member Bylaws Can Protect Founder of Nonprofit”.

Tuesday, August 28, 2012

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