Incorporated vs. Unincorporated Nonprofit

unincorporated nonprofit association vs. incorporated nonprofit

Learn what an unincorporated nonprofit is compared to an incorporated nonprofit.

While we don’t support nonprofit formations at this time, we can help you create your for-profit corporation or LLC today. Get started below.

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When you want your business to support your passion for helping others, you might want to start a nonprofit entity. The following article can guide you if you’re still grappling with whether to form an unincorporated nonprofit association or a nonprofit corporation (incorporated nonprofit).

Is your new venture meant to serve your community and have a greater purpose? If so, maybe it’s time to start thinking about creating a nonprofit entity. You can build your enterprise as an unincorporated association or a nonprofit corporation, and we can tell you the virtues and drawbacks of each type. Below, we’ll briefly review how different types of nonprofit associations and legal entities can help you and the people around you. 

What is an unincorporated nonprofit association? 

Typically, unincorporated nonprofit associations (unincorporated nonprofit or unincorporated organization) are informal organizations with multiple members that consent to run their organization for a common, not-for-profit purpose. This type of legal entity can usually own real property and sue or be sued. Some unincorporated nonprofits are separate legal entities that can shield their owners from personal liability for the nonprofit’s financial and legal issues. Under many state laws, a trust can’t be an unincorporated nonprofit. 

How do you form an unincorporated nonprofit?

You usually don’t have to file paperwork to become an unincorporated nonprofit. In many states, there are no formal steps members have to take to form an unincorporated nonprofit. If you engage in business with others for a common, nonprofit purpose, you’re likely running an unincorporated nonprofit.

Tax Exemption

Large tax liabilities can limit any business, let alone a nonprofit business. That’s why the federal government offers tax exemptions to ventures that don’t place amassing revenue at the center of their goals. Many businesses seek tax exemption through 501(c)(3) status.

The term 501(c)(3) comes from section 501(c)(3) of the U.S. Internal Revenue Code. Section 501(c)(3) of the Internal Revenue Code defines tax-exempt organizations as community chests, funds, or foundations that are organized and operated exclusively for one of the following reasons:

  • Religious endeavors
  • Charity 
  • Preventing cruelty to children
  • Science
  • Education
  • Preventing cruelty to animals
  • Testing for public safety
  • Literary purposes
  • Certain amateur sports

A 501(c)(3) organization can’t have net earnings that benefit a private shareholder or individual. And entities that receive a 501(c)(3) exemption can’t participate in political campaigning or attempt to influence legislation.

A tax-exempt association must have organizing documents. Your unincorporated nonprofit is ineligible for federal tax exemptions unless it has created organizing documents — such as articles of association or a constitution for association. Many states don’t require you to create organizing documents for unincorporated nonprofits, and these organizing documents can create hefty legal obligations for nonprofit members. Therefore, you should speak to a business attorney before you attempt to draft one of these documents.  

What is a nonprofit corporation? 

In general, a nonprofit corporation is an entity formally organized under state law that doesn’t distribute its revenue to its members, directors, or officers. A nonprofit corporation is also a separate entity from its owners and officers. Like unincorporated nonprofits, a nonprofit corporation can own real property and sue or be sued. 

If you want to start a nonprofit corporation, you have to file paperwork with your state. Formation paperwork for a nonprofit corporation is typically called Articles of Incorporation. To remain legally compliant, you also need to write bylaws and hold regular meetings for any nonprofit corporation you form.

If you want your nonprofit corporation to be tax-exempt, your venture has to have exempt purposes and stay within the parameters listed above. You can learn more about nonprofit entities by visiting our nonprofit corporation page. 

Differences Between a Nonprofit Corporation and an Unincorporated Nonprofit

Incorporated vs. unincorporated nonprofit: What are the big differences? Unlike an unincorporated nonprofit association, you can start a nonprofit corporation by yourself. But the biggest difference you’ll likely find between unincorporated associations and nonprofit corporations is the required paperwork. In many states, only nonprofit corporations need to file formation paperwork to comply with state law.

Although you often don’t need paperwork to start an unincorporated organization, remember that unincorporated nonprofits and incorporated nonprofits alike must have organizing documents to qualify for tax-exempt status. And because nonprofit corporations need to register with a state agency before operating, they might receive more guidance from state law for drafting organizing documents that are acceptable for tax-exemption eligibility. 

How ZenBusiness Can Help

At this time, ZenBusiness doesn’t assist with forming nonprofit associations or corporations, but we have many other services and products that can help you run and grow your nonprofit.

If you’re interested in launching a commercial enterprise but don’t know what type of business structure best suits your needs, you can use our website to compare different business types. And if you decide that a limited liability company (LLC) or corporation is the commercial entity you want, our LLC Formation and Corporation Formation services can help you get started in a snap. We can help make the process of keeping up with business paperwork easy, thereby allowing you to focus on your vision. 

Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional in your state.

Unincorporated Nonprofit Association FAQs

  • Unincorporated associations are pretty loosely defined, so you have many options for the type of unincorporated nonprofit you want to start. As long as you have other members to join you, you could start an unincorporated nonprofit that educates children about recycling or sets up food pantries for unhoused individuals in your area.

  • When it comes to unincorporated vs. incorporated nonprofits, an incorporated nonprofit has to register with its state to operate, while an unincorporated nonprofit doesn’t. Also, an incorporated nonprofit can be started by a single individual, but an unincorporated association must have multiple members.

  • The difference between a nonprofit being incorporated or unincorporated is whether it files formation paperwork with its state. Only incorporated nonprofits need to file formation documents.

  • You can form an unincorporated nonprofit in Texas simply by joining others in a venture that has a nonprofit purpose.