- Once incorporated, a nonprofit becomes a person under the law. This means that even if individual directors or officers leave, the nonprofit corporation still exists. Most associations and clubs that have not incorporated will appreciate this characteristic, as they are typically formed for the benefit of the members.
- Incorporation provides financial protection to officers and directors. This is known as limited liability. Should the nonprofit be sued, only the assets of the corporation are at risk. If the nonprofit is not incorporated, directors and officers can be personally liable. Most people want this extra level of protection before committing to board work.
- Many nonprofits have funding difficulties and want to apply for grants from various agencies. Very often, grant giving agencies require the recipient to be incorporated. If your group is not incorporated you can miss out on some important funding options. On the other hand, by incorporating you are opening a door to new fund raising possibilities.
- Incorporated nonprofits receive tax benefits in two ways. The first is that it can apply for tax-exempt, or 501(c)(3) status. This means that if the nonprofit has revenue that exceeds expenses it will be exempt for paying tax on the difference; 501(c)(3) status also enables donations by individuals to be tax deductible. This can make fund raising easier. The second tax advantage is property tax exemption. Some jurisdictions grant this exemption and it can save the corporation money as compared to the unincorporated association which is not eligible.
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