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Establishing a Nonprofit Organization

File the Certificate of Incorporation

In the United States, nonprofits can operate as unincorporated associations, charitable trusts, or corporations. There are fewer government reporting requirements for unincorporated associations, but they will find it more difficult to be recognized as tax-exempt, and they cannot receive grants from most foundations and corporations. Charitable trusts can be recognized as tax-exempt, but they do not offer their trustees the same protections from personal liability as those enjoyed by directors of not-for-profit corporations. While becoming and operating a nonprofit corporation requires considerable time and effort, the advantages of this form of legal organization make it the one most groups choose if they require substantial public support, and if they expect their operations to be ongoing.

The first step in becoming a corporation is drafting the legal incorporation document--the "certificate" or "articles" of incorporation--and filing the document with the appropriate office within your state government, usually the office of the Secretary of State or Attorney General. In some states, approval must first be obtained from any state agency that will be regulating the proposed programs of the nonprofit organization. State incorporation usually can be accomplished within a matter of weeks, although multiple or complex state agency reviews can considerably extend that period.

As you prepare the articles of incorporation, you will need to determine the name of the organization, where the organization will be headquartered, and its overall purpose. When preparing the "purposes clause," remember to state the goals of the organization broadly in order to provide program flexibility in the future, and do not include purposes that will trigger state agency reviews of the proposed incorporation unless your organization in fact plans to conduct those programs.

Prior to the incorporation process, you also will need to make a decision whether or not your nonprofit will be a membership organization. Members may have significant rights with respect to internal governance, such as the right to elect and remove directors, vote upon changes in the structure of the organization and amend bylaws. Becoming a membership organization can be beneficial. For example, prominent individuals from existing community groups affiliated with your organization may feel a strong sense of ownership in the effectiveness of the board of directors, and in the overall success of the nonprofit's mission if they are members. However, forming your corporation as a membership corporation also imposes legal obligations in preserving the rights of members to participate in the corporation's governance.

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