How to Create a Nonprofit Corporation

The first legal step in creating a nonprofit organization almost always is forming a corporation. A corporation is an entity or an organization that has legal standing.

One advantage of creating a corporation is that the individuals who govern and work for it are separate from the abstract thing they create. Although board members can be liable for the corporation’s actions if they don’t exercise their duties and responsibilities carefully, in most cases corporations protect individuals from personal liability.

State law nonprofit peculiarities

In the United States, corporations are created and regulated under the laws of the state in which they’re formed. Although the way a corporation is formed from state to state has more similarities than differences, you do need to create your nonprofit so that it conforms to the peculiarities of your state.

Some states have an incorporation package that includes the forms you need to file. You also can find state contact information on the IRS website.

Nonprofit corporation governing documents

Think of a corporation as a tiny government with a constitution and laws. To set down the rules, you need to prepare the following important documents:

• Articles of incorporation: The articles of incorporation create the organization. The document names the organization and describes its reason for existence.

• Bylaws: A corporation’s bylaws specify how directors are elected and the length of their terms, the officers and their duties, the number of meetings to be held, how many members or directors are required to be in attendance for a quorum to be present, the rules for director attendance at board meetings, and the process through which the bylaws may be amended.

  They also may list the standing committees of the board and grant or limit particular powers of the trustees.

Should you have members in your nonprofit corporation?

Corporations may have members. They may even have different classes of members — voting and nonvoting, for example. In general, having members in your corporation adds additional responsibilities to the governance of the organization, such as membership meetings.

Depending on state law, you usually have the option to create membership conditions in either the articles or the bylaws. If you have a choice, you should add these conditions in the bylaws, which are easier to amend than the articles of incorporation.

Many nonprofit organizations have “members,” with membership cards and special rates on admissions to performances or exhibits. Don’t confuse this kind of membership, which is a marketing and fundraising strategy, with legal membership in a corporation.

Choose your corporation’s name

Choosing a name for your new corporation may be one of the most important things you do as you set it up. A nonprofit’s name is a little like a mission statement. Like your mission statement, you want your organization’s name to suggest the types of programs and services you offer and the people you serve.

If your programs provide home health services to people over 65, don’t name your nonprofit something generic like “Services for the People.” Also stay away from names that are so abstract that they have no meaning at all. Instead, use concrete, descriptive terms.

To avoid possible embarrassment, check the acronym that results from your organizational name. The Associated Workers For Union Labor, for example, isn’t a title you want to abbreviate on your letterhead.

Also be careful that you don’t select a name that’s easily confused with that of another organization. Before you decide on a name, do an Internet search to see whether any other companies or organizations already have that name.