I am seeking 501(c)(3) charity status and questioning whether or not to become incorporated. Why or why not should one be incorporated?
People have written treatises on this question, but here is my personal preference in about 225 words.
The most obvious reason to incorporate is to limit personal liability for the obligations of the corporation. The members, directors, and officers of a nonprofit corporation cannot normally be held personally liable for the obligations of the organization, except in the very rare case in which they might personally cause an injury. The other major reason is because the corporate law in usually well developed in each state. The state statute and case law generally answer procedural and substantive questions that the founders of the organization may not have thought about in their original documents.
The two main alternatives are operating as a trust or an unincorporated association. Trust law is more developed now under the Uniform Trust Code, but I still think it is less flexible and more likely to require court approval for changes in the trust document. The law of unincorporated associations is the least developed area. In some states unincorporated associations are treated like a general partnership, and each of the members could be personally liable for the obligations of the association if it did not have enough assets to cover a claim. The relatively new Revised Uniform Unincorporated Nonprofit Association Act helps clarify the rules, but has not been enacted widely and is still relatively untested. (See Ready Reference Page "Revised Uniform Unincorporated Nonprofit Association Act Provides Clarification for Rules of Conduct")
I would much rather operate as a corporation where the rules are relatively clear and I can review them in advance than operate as a trust or unincorporated association where a lot of questions are not as easily answered.
Tuesday, March 23, 2010