In consultations with homeschool leaders, I frequently explain the two options for nonprofit homeschool groups:
- Be a nonprofit corporation
- Be an unincorporated association (this is the default if you do nothing)
I’ve written articles, blog posts and podcasts about what a nonprofit corporation is and its benefits. It’s usually what I recommend for homeschool groups.
- How do we become a recognized nonprofit?
- Do we need to Incorporate?
- 5 Great Reasons to Incorporate
- Sample Articles of Incorporation
So, what is an unincorporated association?
Here is an excerpt from an excellent article from Nolo.com
What is an unincorporated nonprofit association?
“What happens, legally speaking, when a group of people get together and decide to perform some task without filing any legal paperwork or establishing any formal legal structure? Whether they know it or not, they have formed an unincorporated association. “Unincorporated association” means an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not.
“Now, if the lawful purpose they’ve joined together to accomplish includes earning a profit, their association is automatically a partnership or joint venture for tax and most other legal purposes. For example, if two people get together and decide to operate a food truck, they’ve formed a partnership, even if they file no paperwork.”
So determining if you want to run a business (with a profit motive) or a nonprofit organization is a very important decision to make early on. I recommend you talk with one of HomeschoolCPA’s Recommended Consultants to discuss the pros and cons of a homeschool group being a for-profit or nonprofit organization.
Nolo.com goes on to explain the nonprofit’s purpose of benefiting the public, which is what homeschool nonprofits do: they benefit the public by educating children.
” But, if the purpose for the association is to benefit the public some way, and does not include earning a profit, the association’s members have formed an unincorporated nonprofit association. People form nonprofit unincorporated associations all the time; often without being aware of it. For example, if you and several of your neighbors get together to help raise funds to keep your local library branch open, you’ve formed an unincorporated nonprofit association.”
And here’s the reason why I typically recommend nonprofit corporation status over unincorporated status to homeschool groups: limited liability for its leaders and members.
“The biggest drawback to the unincorporated nonprofit association, and the reason nonprofits often abandon this form in favor of a nonprofit corporation, is that it has no separate legal existence apart from its members. Because it is not respected as a separate legal entity, its members generally can be personally liable for its debts and liabilities. Some states, such as California, give some limited liability to nonprofit association members; but it’s not as good as the protection obtainable from a nonprofit corporation. Moreover, unless your state law contains an “enabling statute” granting such rights entities, an unincorporated association cannot hold or receive property, or sign contracts, in its own name.(emphasis added)
“Because of these limitations, nonprofit unincorporated associations are usually used to accomplish limited short-term goals, such as raising funds for a library. Nonprofits with long-term missions should usually incorporate. For more on incorporating, see Nolo’s article, Five Reasons to Incorporate Your Nonprofit.”https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html
I created a webinar to explain nonprofit incorporation as a step in creating a nonprofit for your homeschool community.
Create a Nonprofit webinar.
The webinar lasts about 90 minutes and costs $10. I hope you find it helpful.
If you prefer to read, my book The IRS and Your Homeschool Organization explains nonprofit incorporation and 501c3 tax exempt status for nonprofits as well.
Carol Topp, CPA
Helping Homeschool Leaders