As a nonprofit gets off the ground, it quite often happens that its leaders are hesitant to take steps to organize the nonprofit as a legal entity because doing so could disrupt the interpersonal chemistry between the organization’s founders. Although legal terms around legal entities—unincorporated associations, corporations, and so forth—may seem restrictive, in reality the law allows an organization’s founders significant leeway to craft their organization’s governance to match their unique preferences.
It’s important to understand that any time two people get together to pursue a common lawful and nonprofit purpose they have formed an unincorporated nonprofit association even if they have taken no further steps to organize a legal entity. Essentially, the association arises automatically as the default form of the nonprofit. Even though an unincorporated association has not filed paperwork with the state to be formally recognized as a legal entity, it can still have legal and tax liabilities, and may have other important features that make organizing all the more important.
Whether remaining as an unincorporated association or choosing to organize as a nonprofit corporation, at some point the nonprofit’s founders will need to hammer out the governing principles of their organization. To protect individuals, provide the nonprofit with independent substance, and comply with legal requirements, these principles need to be written down.
Some documents, like a nonprofit corporation’s articles of incorporation, must comply with specific requirements. The same is often true of an organization’s basic structure. For example, a corporation must have a group of people (or a single person) serving as a board of directors, and also needs to have certain officers. But there are many areas for creativity.
The potential for customizing an organization’s policies and practices is limited only by fairly simple governance rules that every legal entity must comply with. Of course, a creative approach still must allow leaders to meet their fiduciary obligations and protect the organization from risk.
The Church Law Center of California provides legal counsel to churches and other nonprofit organizations. If your nonprofit wants to explore alternatives to the usual approaches to governance, we’d be happy to guide your process. Call us at (949) 689-0437 or reach out to us through our contact page.