Nonprofit Corporations vs. Unincorporated Associations
The nonprofit corporation is another alternative to the unincorporated association for organizing a nonprofit organization. According to Wikipedia, an unincorporated association has been defined as existing:
"...where two or more persons are bound together for one or more common purposes by mutual undertakings, each having mutual duties and obligations, in an organization which has rules identifying in whom control of the organization and its funds is vested, and which can be joined or left at will."[1]
Associations that are organized for profit or financial gain are usually called partnerships.[3] A special kind of partnership is a co-operative which is usually founded on one man-one vote principle and distributes its profits according to the amount of goods produced or bought by the member. Associations may take the form of a non-profit organization or they may be not-for-profit corporations; this does not mean that the association cannot make benefits from its activity, but all the benefits must be reinvested.
According to WestLaw, all states have adopted extensive statutory schemes relating to nonprofit corporations. As such, the use of the nonprofit corporation provides an immediate advantage over unincorporated associations due to the greater body of statutory and case law available for review in the area of nonprofit corporations. However, this gap is closing as states begin to consider and adopt statutes that codify and/or reverse the common law principles traditionally applicable to unincorporated associations. Other factors to consider are:
- The liability of members and directors is more limited for nonprofit corporations than unincorporated associations; however, recent statutory changes have clarified and expanded the limited liability of members, directors and agents of unincorporated associates.
- Traditionally, the formalities required of incorporated organizations were thought to be too burdensome on small unincorporated associations and thus this became a common reason for avoiding the corporate form. The current trend, however, is for growing unincorporated associations to adopt formalities similar to corporations, such as detailed bylaws, member meetings, selection of a governing board and officer duties.
- Individuals and organizations tend to be more familiar with corporations than with unincorporated associations and organizations likely to have substantial cash assets or own real property may be better advised to incorporate since banks and title companies are more accustomed to dealing with corporations.
