The process of creating a legal entity involves much more than merely filing paperwork with the Secretary of State. Filling out the filing paperwork should be the final step after a careful and thoughtful evaluation of your organization’s purpose, goals, and operating structure. The types of corporate entities available for a non-profit organization to form as are varied and your organization should select the form which best facilitates the running of its entity. Here are some things your organization may not have considered prior to seeking entity status.
- What Type of Corporation
Depending on the state you are located in there may be a multitude of corporate forms for your entity to take. The most prevalent is a non-profit corporation. Most states have a non-profit corporation act included within their corporation’s code. This allows charitable, religious and education organizations to form a legal entity. However, depending on the purpose of you organization it may be better to form as a charitable trust, an unincorporated nonprofit association, or, if you are a church, the state may require you to register as a religious nonprofit corporation. Since each state is different your organization should consult with an attorney about what choice of entity will best serve the organizations mission.
- Hope for the Best, Plan for the Worst
While your organization is nascent, relationships are likely strong, everyone is committed to the mission, and leadership likely isn’t contemplating the organization may fail. However, it is imperative to consider what will happen in the unimaginable scenario that your organization does fail. What will happen to its assets? Or what if in the future your organization’s leaders have diametrically opposed plans for the organization? What happens if the cause your charity champions no longer exists? At the outset of your journey these are hard questions to contemplate, no one wants to contemplate failure. However, if you do not, and do not plan for these exigencies in your governing documents, the resolution could be decided for you by state law. It is therefore imperative to consult with a business attorney about what your state’s default rules are for non-profit governance and to discuss how to include contingencies in your bylaws to address situations like those listed above.
- How will your Organization be Governed?
Most state non-profit statute’s contain default rules for how the entity will be governed, but many of these defaults can be changed by specific provisions in an entity’s bylaws. Your organization should therefore consider if the default rules are preferable, or if you would prefer to change them. Consulting with an experienced business attorney can make this process seamless, as they will be able to answer questions about the default rules, which can be changed, and advise on whether your proposed governance structure is allowed under state law.
- If your Organization will have Members, How is Membership Determined?
On its face this may seem trivial. However, if your governance documents provide for membership votes defining membership is of the utmost importance. Similarly, if your group is a church, putting the membership requirements in your bylaws ensures that only the congregation will be able to vote on church decisions. An experienced business attorney can assist your organization in drafting clear membership clauses which define the requirements for an individual to be admitted as a member, how to remove members, and other related issues.
- For Churches that are Part of a Denomination, How will you Handle your Bylaws?
For many churches, the concept of bylaws is foreign. Your congregation is governed by the canon or discipline of your faith. However, this can lead to issues if there are conflicts with the default rules or, if your state requires bylaws to be filed, your group submits some standard bylaws but those conflict with the canon or discipline. Take the time to consult with an experienced attorney to ensure that your churches needs are met and that the organization’s bylaws are an accurately reflect church governance.
The attorneys at Dalton & Tomich, PLC are experienced in working with both churches and non-profit organizations to create corporate entities. We have worked with groups across the country to help fashion their corporate entity to serve their specific needs. If your organization is considering forming a corporate entity, in the process of formation, or already have an entity the attorneys at Dalton & Tomich, PLC are highly experienced in all aspects of nonprofit formation and governance and are here to help guide you through any and all legal complexities to help achieve your goals.
This blog was authored by a post bar law clerk, not an attorney. While we strive to provide informative content, this post should not be considered legal advice.
