Incorporation of Non-profit Organization - Essay Example

Incorporation of nonprofit organization It is important to understand that incorporation is a legal channel of formalizing a group of persons as a recognizable company. This is only possible when the group of persons have a common goal like in this case which they want to achieve within the confines of the laws of the land. Incorporation will give this group a separate legal entity status (Hopkins, 1417). This is a team of tried and tested professionals in diverse disciplines and can deliver in educating various people in important issues that are affecting various institutions. It is imperative that these professionals understand that once they incorporate the organization it will be operating under the laws regulating any other business entity and this therefore calls for critical scrutiny of the advantages and disadvantages of such a move. The group is likely to derive a number of benefits from the incorporation that include; Separate Legal Entity: an incorporated organization has a distinct legal personality from its members. In this respect it is can sue and be sued in its individual capacity. This is important to these professionals since they will be provided by a formal legal status. Incorporation will also lead to Limited Liability on the part of the members of the organization (Hopkins, 1417). In this case the professionals will not be personally liable for the debts and obligations of the organization with exception of some circumstances where the directors may incur personal liability. The organization is entitled to perpetual existence and in this case even if members change, this noble organization will continue to exist unless dissolution is to be executed in line with the Companies Act. Once the members incorporate the organization they will be able to own property in the name of the organization’s name. This will help the members in the sense that if some of them withdraw for any reason then the property will still remain under ownership of the incorporated body. Since this organization will need to fund its operations which may be out of its financial reach, incorporation gives it an upper hand in seeking financial Aid from the government or any other donor. Another important benefit that this organization is likely to enjoy is eligibility to be exempted from some federal and state corporate income taxes in addition to other taxes (Hopkins, 21). Other miscellaneous benefits that can be derived from incorporating this group into a nonprofit making organization is possible real and personal property taxes exemptions, cheaper advertising rates, relatively cheaper postal rates and broadcast announcements and advertisements. The professionals also need to look into the demerits of incorporating this organization as a not for profit entity. Among the challenges the organization is likely to encounter are a lot of paper work in various forms. There is the cost of hiring legal officers to help in preparing the incorporation papers, energy and time required for compliance with the legal regulatory guidelines to grow the organization. The team will also have to grapple with restrictions on nonpayment of directors, no lobbying or engagement in political campaigns and when the organization is to wind up all the property are to be transferred to another nonprofit making entity (Hopkins, 21). The team of professionals in this case need to analyses and compare the merits and demerits and make an informed decision. This is a team of professionals offering educational services to various people in different social settings. As a nonprofit making organization it would be advisable to incorporate it as educational and literacy society. This will fit the educational and literacy services they offer as professionals in different disciplines in the society. This would be suitable and a viable venture since they have already undertaken field test and proved able with positive client feedback. It is mandatory that for them to incorporate the organization some legal procedure must be followed. For them to be recognized by the government authorities and public that it is a genuine legal institution they must acquire some certificates from the relevant government agencies and these steps can be summarized as: reading out the companies act requirements and considering whether the organization in question is able to meet them (Agard,408). Registering with the registrar of companies with a well-drawn memorandum of association and articles of association is one of the legal thresholds. Some of the basic things that must be observed in this process include the name of the organization, clear description of the services it is to offer, the names of members, their occupations and address, location of the head office of the office among other things. This procedure is almost the same as that of a profit making organization with minor exceptions. The registrar of companies after thorough verification of all the provided information in line with the provisions in companies act will issue the group with certificate of incorporation. This sets them free to commence their business as a full-fledged not-for-profit organization. A long the procedure of seeking the organization’s incorporation, it is important to note the important part of the manager. Nonprofit making organizations also generate some income besides technical management they require and this is important in its prosperity (Landskroner, 120). There is also the co-ordination of the various activities that converge to fit into its objectivity. During the incorporation with the registrar of companies, there will be need to indicate the director of trustee of the organization, his/her name and address in case there is only one. In the event that they are two or three which is the maximum, their details must be provided like in the case of one. Since this team of professionals has not taken any formal nonprofit making organization’s management training, they will have to propose a qualified candidate (s) through public recruitment. The duties of the trustee must be clearly indicated and any benefit in exchange for the service to be offered during the period in office. All the issues in the running of the organization will require their voting so that the manager’s work is simply to co-ordinate and oversee implementation of various proposed policies (Landskroner, 120). A well-drawn mode of management and chain of command in this organization will make it easy for members to work hand in hand with the manager and board of trustee. The entire management structure must appear in the certificate of incorporation for legal purposes in the operations of the organization. Checklist Establish a purpose The purpose of this incorporated organization needs to be in line with the IRS Research similar Organizations This will constitute conduction of market analysis to identify the organization with similar action plan and purpose. The aim of this is to know what it takes to operate efficiently. Recruit a Board of directors This process will be constituted of 5-7 members who are not related and will legally be responsible for fiduciaries and governance of the organization’s funds and legal compliance. Development of a conflict of interest policy This is important in prevention of conflict of interest in the discharge of duties and use of resources owned by the organization. This policy will also act as the guide in choosing members of board to act in the best interest of the company. Create a mission statement This is the guide towards achievement of the organization’s set goals. Develop a program plan and a budget This will be the details outlay of the plans that the organization has set. This will explore the persons to whom the plans are to serve and the people to execute them. Develop a plan to raise funds This entails the sources of finance to the organization and research on the possibility of attaining the same from other institutions in form of grants or loans Draft by-laws These are internal laws that regulate the actions of the directors and their decisions on various issues. Check availability of Trade name This is done by paying some money for the reservation of a given name before incorporation of the name of the organization File article of incorporation This include making sure to file tax exempt of the incorporation. This will also include dissolution clause which must be registered by the registrar of companies. Apply for Federal Employer Identification Number from the IRS This can be obtained through filing the forms online, by phone, mail or Fax Hold organizational meeting The identified Board members meet to ratify by laws and take minutes to be recorded by the organization after meeting. Obtain federal Tax-Exemption Determination This is attained by Completing and filing IRS Form which requires the purpose, program description, by laws and budget. Register for Charitable solicitation This is done by filing the charitable solicitation Form File combined Registration Application This is required to obtain exemption on tax on sales. State tax Exemptions Registration of Employees with concerned authorities Obtain proper insurance for the organization, officers and board members IMPORTANT WEBSITES Name Search Maryland Department of Assessment and Taxation * Be sure to read the instructions before doing a search http://sdatcert3.resiusa.org/ucc - charter/CharterSearch_f.aspx Articles of Incorporation Forms and fees Maryland Department of Assessment and Taxation http://www.dat.state.md.us/sdatweb/corp_forms.h tml Overview about becoming NPO IRS http://www.irs.gov/charities/content/0,,id=96986,00.html Application for EIN (SS4) IRS http://www.irs.gov/businesses/small/article/0,,id=98350,00.html Application for exemption (1023) IRS http://www.irs.gov/pub/irs - p df/f1023.pdf FAQs About Applying for Tax - Exemption IRS http://www.irs.gov/charities/article/0,,id=96590,00.html Info about other NPO’s Guidestar www.guidestar.org Works cited Agard, Kathryn A. Leadership in Nonprofit Organizations: A Reference Handbook. Thousand Oaks, Calif: Sage Publications, 2011. Print. Futter, Victor, Judith A. Cion, and George W. Overton. Nonprofit Governance and Management. Chicago, Ill: Section of Business Law, American Bar Association, 2002. Print. Hopkins, Bruce R. Legal Responsibilities of Nonprofit Boards. Washington, DC: Board Source, 2009. Print. Hopkins, Bruce R. Starting and Managing a Nonprofit Organization: A Legal Guide. Hoboken: Wiley, 2013. Internet resource. Landskroner, Ronald A. The Nonprofit Manager's Resource Directory. New York: John Wiley & Sons, 2002. Internet resource. Read More