Definition:
The act of legally forming a corporation.
Discussion:
The vast majority of nonprofit organizations are structured as corporations. A nonprofit corporation is a business entity that stands legally apart from the persons govern the organization (the Board of Directors). As a separate legal “person”, corporations are able to buy and sell, borrow and lend, and sue and be sued without directly impacting the individuals involved. This liability protection, known as the corporate veil, is one of the most important reasons to incorporate.
Incorporating is also one the first steps taken in the formation of a new nonprofit. Though your nonprofit may later seek federal 501(c)(3) tax-exempt status, the corporation is formed at the state level only. This is done by filing Articles of Incorporation (alternatively called a Charter in some states). It is this document, once filed and approved by the state, that establishes the entity.
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