What’s the difference between an association and a corporation?
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.
