Through incorporation the board and the managers create a legal entity that will protect them from potential personal financial losses. The nonprofit corporation will provide limited liability for those managing or governing the organization. The corporation absorbs all the financial debts and obligations; they are not a personal burden for individuals associated with the organization.
Incorporation also facilitates business transactions for the organization. A corporation as a legal entity functions in a reasonably stable environment. It is easier for it to sign contracts, open bank accounts, and make other commitments for which an individual might not have the necessary collateral or credit credentials. Equally, funders tend to prefer to collaborate with an established organization that is incorporated and therefore bound by an established legal environment.
To incorporate, the organization must file articles of incorporation with the appropriate state government agency which is usually — but not always — under the auspices of the Secretary of State. The organization must follow the state nonprofit laws and register with every state where it engages in fundraising. The board’s responsibility is to ensure all these obligations are understood and handled on time.
What to do:
- Use standard forms for the articles of incorporation if they exist
- Remain general in definitions to allow for organizational evolution and programmatic growth
- Procure a copy of the state laws and be familiar with their requirements
Sample articles of incorporation: