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Corporation - the Basics

For-Profit or Nonprofit Corporation


You don't have to be a lawyer to set up your nonprofit corporation, but here are some basics about corporations that will be helpful.

What is a corporation?

A corporation is a separate legal entity. As such it allows a group of people to pool their energy, time, and money for profit or nonprofit activities. The corporation comes into legal existence when its founders comply with their state's incorporation process.

A corporation is treated by the law as a separate "person," distinct from the people who own or manage it. The corporation can enter into contracts, incur debts, and pay taxes. Corporations can be set up as for-profit purposes or for nonprofit purposes.

What is the difference between a for-profit and a nonprofit corporation?

A business corporation can be set up for any legal purpose. I can issue stock to investors in return for money or property, or services performed. Shareholders receive a return on their investment should dividends be paid. When the corporation is dissolved, its assets are divided among the shareholders after all creditors are paid.

A nonprofit corporation cannot issue shares of stock or pay dividends (there are some exceptions depending on what type of nonprofit it is). Nonprofits cannot pay dividends or profits to their members or other individuals. When a (501(c)(3) nonprofit goes out of business, it must distribute all remaining assets to another tax-exempt nonprofit group.

What is an out-of-state corporation?

Corporations formed in a particular state are "domestic" corporations. Corporations formed in other states are "foreign" corporations in that state, even if they are physically present and engaged in activities in that state. Thus, a corporation formed in Arizona is a domestic corporation in Arizona but a foreign corporation in other states.

How To Form A Nonprofit Corporation, Mancuso, Nolo Press

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