Nonprofit Organizations: Should You Incorporate?

Many owners of nonprofit organizations struggle over the decision of whether or not to incorporate. It is not required for a nonprofit organization to incorporate, but in some situations, it is advisable.

Nonprofit Organizations: Tax-Exempt Status

You don't have to incorporate your nonprofit organization in order to receive tax-exempt status. Even if you decide not to incorporate, you can still apply for and receive 501(c)(3) status and apply for grants that address those organizations alone. Just because your nonprofit organization is not incorporated does not mean that it is any less than one which is.

On the other hand, many government and private grants are only available to nonprofit organization that are incorporated.

Nonprofit Organizations: Structure

It is true that an incorporated nonprofit organization has a more defined and organized structure. The organization exists as a separate entity from the owners, directors and employees that run it, thereby significantly limiting the liability of those individuals to the nonprofit organization itself.

It is also true, however, that incorporating your nonprofit organization when it isn't necessary could cost a significant amount of money, time and resources that you might not have to spare.

Nonprofit Organizations: Credibility

This boils down to the purpose of your nonprofit organization. If you plan on handling large amounts of money and want to extend the organizations into other states, incorporating the organization might be in your best interest. The public at large will be more inclined to work with a nonprofit organization that is incorporated, versus one that is not.

IF you plan to stay local, however, and your aspirations do not include large sums of money or intense exposure, you may not need the credibility that comes with incorporating your nonprofit organization.

Nonprofit Organizations: Grants

As I said before, many government and private grants are available only to nonprofit organizations that are incorporated. This means that you may not be eligible for grant money to which you would otherwise have been entitled. Consider this when you are deciding whether or not to incorporate; you don't want to miss out on opportunities that could help your cause in the long run.

Nonprofit Organizations: Directors & Employees

If your nonprofit organization has more than five directors and more than 50 employees, I would recommend incorporating. Having a large number of people on board is certainly an asset, but it can also be a liability, which is something that a nonprofit organization cannot afford. Incorporating a large organization ensures that all of your bases are covered and gives you an opportunity to organize the business end in an efficient and acceptable manner.