Nonprofit Organization Charitable Trust Vs. Corporation

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Most non-profits operate as corporations, but that's not the only option. One of the alternatives is setting up as a charitable trust. The process of establishing a charitable trust is similar to setting up a conventional living trust. You draw up a declaration of trust detailing how the trust assets must be spent, then you place assets into the trust and appoint a trustee. Your choice between the two options depends in part on whether you value flexibility or control.

Corporate Flexibility

To create a non-profit corporation, you file articles of incorporation with your state. If you want donations to be tax deductible, you also file with the IRS to become a 501(c)3 tax-exempt organization. Setting up a corporation is more complex than creating a trust, but state laws give corporate directors a lot of freedom. If your non-profit needs to change its goals or methods, corporations can usually do so. That makes the corporate form flexible, but it's also easier for directors to ignore your original intent in establishing the non-profit.

Trusts Stay True

A trust is more restrictive than a corporate non-profit because trustees have less independence than corporate directors. The declaration of trust lays down binding rules for the trustees and it's difficult to change them. This is a plus if you want to commit the trust to a specific goal. For example, if your goal is to fight hunger, a corporation may be your best bet because it lets you change your methods of fighting hunger to adapt to changing circumstances. If your goal is to fund food banks in your city, a trust dedicated to that purpose might work better.

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