Nonprofit Questions & Answers - Incorporation

If your nonprofit will seek tax-exempt status, you'll need to have the wording required by the IRS. For this wording, look on the Corporation Division Website for Form 112.

The most common additional optional provisions are: limitations on the liability of board members, limitations on the board’s powers and a series of provisions related to membership corporations.

The incorporators do not have any liability. Their responsibilities consist  of filing the Articles of Incorporation, paying the fee, and calling  the organizational meeting after the filing has occurred.

Only one incorporator is required, but you may have as many as you wish.  All incorporators must sign Form 112.

There is a great deal of confusion about the term “members.” When used in relationship to a nonprofit corporation the legal meaning of this term refers to a defined group of individuals who play a role in the governance of the organization. It can complicate your situation if you use the term "members" to indicate people who contribute to the organization. A much better term for this group is “supporters.”

Idemnification  is the promise of the corporation to cover the legal  expenses/judgements incurred by a board member as a result of their  board service.

No. The Corporation Division does not require this information. The Articles of Incorporation requires at least one incorporator. The incorporator(s) may be the same person(s) as the board of directors, but the function is completely different. You will be identifying your board when you register with the Department of Justice or request tax-exempt status from the IRS.

Yes. Unless you are establishing a church, all nonprofit corporations are required to have a board of directors with a minimum of three members. If you are setting up a church you may choose to have a “corporation sole” in which case there is no board and the organization is governed by its religious head and their successors.

Make sure to read our Board of Directors questions and answers.

The registered agent is the person who will be served with any legal papers  regarding corporation business. The registered agent is not liable or  required to respond, but should be someone who will be responsible to  see that the papers reach the appropriate person in the organization.

It  takes 1-2 weeks for the Corporation Division to process your  application to create a nonprofit corporation if you mail it in. If  you’re in a hurry you can fax the form or take it to Salem and walk it  through the process.

The fee for filing the Articles of Incorporation is $50.

Articles of Incorporation, Form 112. This is available on the Corporation Division Website.

If you plan to apply for tax-exempt status, you will need to be sure to include certain IRS-required wording in your Articles of Incorporation. Attached to the Corporation Division's Form 112 is a page with the required language. When submitting Form 112, you can attach this page and write "See attached." for items 5 (optional provisions) and 8 (distribution of assets upon dissolution).

What you file with the Secretary of State constitutes your legal Articles of Incorporation. If you submit a completed Form 112 and attach a sheet with the IRS-required language, your Articles' provisions will correspond to the numbers on the form: e.g., Article 1 will be the organization's name, Article 2 the name of the registered agent, etc. Alternatively, you can collect all your Articles into a separate document and attach it to Form 112. In each relevant section of Form 112, you would write "Please see attached."

Oregon nonprofits can be either unincorporated associations or corporations. An unincorporated association is defined as a group of people who come together for some purpose other than to do business.

The positive aspects of associations are:

• There are no registration or reporting requirements to the Oregon Corporation Division or Dept. of Justice Charitable Activities Section
• There is greater flexibility in how the organization is run
• Change in membership doesn’t impact the existence of the organization

The negative aspects of associations are:

• There is no protection for the members. Everyone involved is equally liable for debts and in the event of a suit
• It is not possible to open a bank account using the federal ID# (EIN#)

Corporations provide a much higher degree of legal protection for the individuals involved. They are also subject to more reporting requirements and to Chapter 65 of the Oregon Revised Statutes. The legal protection is often enough reason enough to decide on this structure.

NOTE: It is possible to apply for federal tax-exempt status as an unincorporated association, but if you should decide to incorporate at a later date, you will have to re-apply. The IRS considers the new corporation a different entity.

Unincorporated associations are probably most appropriate for groups like book clubs, garden clubs, small hobby groups, etc. They are a poor choice if your organization will be engaging in any activities with potential financial risk or that might result in physical or emotional injuries.

There are several issues to consider before you try to set up a new nonprofit:

Structure
Nonprofits differ significantly from partnerships or sole proprietorships:

• A nonprofit is controlled by a board of directors
• There is no private ownership or personal financial interest
• Success is more likely if a nonprofit is started by a group rather than an individual
• If you want sole control and decision-making power this is not a good choice
• You cannot sell a nonprofit

Funding
Many people think it is relatively easy to obtain grant funding to support a nonprofit. This is not necessarily true.

• A nonprofit must have tax-exempt status to apply for grants or solicit tax-deductible contributions
• Competition for grants is high
• Funders prefer to fund organizations with a track record
• New organizations should plan for several years of low/no funding unless a funder has already stepped forward

Community Support
Nonprofits are often created by individuals with a strong personal vision. This can be a tremendous help but sometimes ends up a hindrance:

• Nonprofits are intended to fill a community need
• Most successful nonprofits are started by a group of people who share the vision AND the responsibility
• Individuals who want to start a nonprofit will be more successful if they can involve others in their vision
• The Internal Revenue Service (IRS) looks for evidence of community support in evaluation of applications for tax-exempt status

Maintenance
Since most people who start nonprofits are motivated by the desire to provide a particular program or service they often fail to realize that there is a significant amount of administration required:

Areas you must attend to if you hope to succeed:

• Board support & development
• Fiscal management
• IRS & state reporting requirements
• Insurance and risk management
• Grant writing & other fund raising

It is critical to have enough active participants to share the responsibility for these tasks. Organizations that depend on one or two people for these tasks have a high rate of failure.

Read FAQs about applying for tax-exempt status in the Tax-Exempt section.