A nonprofit can be organized as an corporation, unincorporated association or trust. It may also be organized as a limited liability company (LLC) in very limited situations. The first step in creating a 501(c)(3) eligible organization such as a charity or religious of worship, or other 501(c) eligible organization, is to decide what form of nonprofit legal entity it should be. Each form has its own strengths and weaknesses. We can discuss these with you to help you decide which is best for your nonprofit, and then work with the relevant governmental authorities to establish the nonprofit legal entity of your choice.
Perhaps one of the most important considerations in nonprofit entity choice is the limitation of liability. Not all entities limit the liability of its directors, officers or members. Unless a nonprofit is organized as a corporation or LLC, the directors, officers and members of the nonprofit may be personally liable for the debts, liabilities and obligations of the nonprofit.
What does it mean to be personally liable? Nonprofits can have legal obligations, such as to pay money because of a contract for goods or services, or because someone was injured and the nonprofit was sued for the injury and lost. When a nonprofit is not a corporation or LLC, in the event the nonprofit does not have the cash and other assets necessary to meet these obligations, the directors, officers and members of the nonprofit may need to meet the obligations out of their own personal funds and assets. It is for this reason we always suggest establishing a nonprofit as a non-profit corporation.
If you need support in forming a not-profit corporation, please reach out to us. We would be glad to assist.