The most common form of nonprofit organization is the corporation. A corporation is a creation of the law. Those who create a corporation must file a document known as articles of incorporation, which sets forth important information about the corporation itself. Once a corporation is formed, it becomes its own “person” under the law, separate from its directors, officers, or owners. The corporation itself may sue others or be sued.
A nonprofit entity benefits from forming as a corporation for two primary reasons. First, the laws governing corporations provides considerable protection to officers, directors, members, employees, and volunteers against personal liability. This means that if the corporation itself incurs liability (e.g., a third person successfully sues the corporation), those who act on the corporations behalf usually do not incur liability. Second, the law governing corporations is generally well-settled, meaning that the rules that govern the operation of the corporation are more clearly defined.
Several states have adopted the Model Nonprofit Corporation Act, which was first drafted by the Business Law Section of the American Bar Association in 1964. It was subsequently revised in 1987.