
Unicorporated Nonprofit Associations
There are some unicorporated nonprofits associations organized under Iowa Code Ch. 501B enacted in 2010. The purpose of 501B was done to benefit organizations providing nonprofit benefits but had not taken the steps to become an official nonprofit corporation. The definition of an unicoprorated nonprofit association is an unincorporated organization consisting of two or more members who have an agreement to engage in one or more nonprofit purposes. No filing is required, but are optional. Although this is not the preferred structure, it may work in some circumstances.
Nonprofit Corporations
Most nonprofits are nonprofit corporations. In Iowa, this is governed under Iowa Code Ch. 504. There are three different types of nonprofits:
- Operating for public charitable purposes (“public benefit” corporations such as housing or soup kitchens)
- Benefit a group of people they serve or support (“mutual benefit” corporations such as trade associations such as the Iowa Bar Association or country clubs)
- Operating for exclusively for religious purposes (“religious” corporations).
All are nonprofits and generally follow the same rules, but each one may be required to follow different rules depending on the category.
Mandatory Provisions
For instance, each type must generally:
- File Articles of Incorporation with the Secretary of State that contains:
- The name of the corporation distinguished from all others
- Name and address of each incorporator. The incorporator is the individual or entity incorporating the organization. Typically, this is the founder or founders.
- The name of the registered agent and the agent’s address.
- Whether the organization will have members.
- A description of how assets are to be distributed upon dissolution.
Members
A member is a person who has the right to vote in the election of a director (in accordance with how the bylaws conduct elections). Other rights available to members include the right to vote on amendsments to the articles of incorporation, mergers, and sale of corporate assets upon dissolution.
Trade associations almost always have members, while public benefit and religous corporations may but may not have members.
Many organizations have “supporting members” but these are not necessarily members as defined in the Iowa Code. These members may have benefits for proiding donations or membership, but they do not have the right to vote on organizational changes.
The pro of having a large group of members is an abundance of insight from many individuals who have an influence on shaping the corporation. However, the disadvantage is that it is more complicated due to meeting requirements, difficulty in contacting members, collecting dues, etc. For simplicity sake, the default rule is to not have members.
Nonmandatory provisions
- Purpose for organization
- Names and directors of initional directors
- Managment strategy
- Defining and limiting powers of the corporation
- Qualifications and rights of members
- Limit director powers
- Permitting or requiring indemnification for liability due to director actions (or failure to act).
Although the mandatory provisions are required to create a nonprofit in Iowa, they are not enough to qualify for exempt status with the IRS. As such, many of these nonmandatory provisions need to be included so the IRS can grant tax-exempt status.
Personal Liability
504.901
A director, officer, employee, or member of the corporation is not liabile for the corporations debt. These individuals are not liable for any action or failure to take action for their duties unless: (1) receiving financial benefits not entitled to, (2) inflicting harm on the corporation or employees, (3) making unlawful distributions, (4) intentionally committing a crime.
The articles of incorporation can further limit liability except for the four exceptions listed above.
Board of Directors
A board of directors is required. A minimum requirement is one director, but better practice is to have around 3–5 directors (5 is better). Directors also need to be individuals where the articles or bylaws can create qualifications and election requirements.
Other Organizational Features
After the board of directors is created, the organization can ratify the articles of incorporation, adopt bylaws, appoint officers, authorize banking business, authorize applying for tax-exempt status, adopt conflict of interest policy, and grant officers the authority to act in a way to carry on the corporation purpose.
IRS Tax-Exempt Status § 501(c)(3)
501(c)(3)s are nonprofits organized and operating with a tax exemp purpose—purposes include charitable, religious, science, etc. All 501(c)(3)s are nonprofits, but not all nonprofits are 501(c)(3)s.
To apply for a 501(c)(3) organiztions need to file either a 1023–EZ or 1023 form.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.