More on Nonprofit Law

Nonprofit corporations are typically registered with the Business Services Division of the Secretary of State’s Office of the state in which the nonprofit has its principal place of business. Nonprofits have members instead of shareholders, since profits, if any, cannot be distributed as dividends, but must instead be redirected into services that support the qualifying purposes of nonprofit’s articles of incorporation. As is the case with any other legal entity, nonprofits have a board of directors and a slate of officers.

Proper attention to corporate procedures (including meetings, notices and minutes) is critical for retaining the legal protections that come with the establishment of a legal entity. These protections include freedom from personal liability on the part of members, directors, and officers. Some nonprofits are eligible to become what the Internal Revenue Service (IRS) refers to as 501(c) entities. A donor to a 501(c) entity receives a tax deduction for the gift, which is a big help to the nonprofit’s fundraising efforts. A nonprofit’s employees may not receive excessive compensation, and a 501(c) entity must account accurately and completely on an annual IRS form 990, in order to prove that its expenditures are all legitimately in furtherance of its stated mission.