Legal Question in Business Law in California

I started the Association of Women Funeral Directors, and question whether I should file incorporation papers at this point (because soon we're evolving into the Association of Women Funeral Service Professionals). I don't know which incorporation status is good for us - we've not turned a profit yet - all member dues have gone into promotion and website development...and I hate to make a mistake in filing choice simply because I don't want to pay taxes on future earnings.

I've heard that non-profit status is cumbersome.

Can you advise?

Asked on 8/21/10, 5:54 am

2 Answers from Attorneys

John Martin Law Offices of John C. Martin

Except for some small clubs, usually the advantages of a corporate form heavily outweigh the disadvantages. But first you need to sit down write two lists: one with the pros and cons of non-profit status, and another with the short and long term goals of your organization. You haven't mentioned any of your goals in your question, but they may include soliciting donations, serving the public good, and operating at a lower cost. A non-profit may mean: tax-exempt status, limited liability, indemnification, control of the direction of the association by a board of directors, possible oversight from the Attorney General, reduced-rate mailing privileges, regular filings and reporting requirements, observing corporate formalities, exemptions from unemployment insurance, etc. If these and the other attributes of non-profit status line up with your goals, great. If not, maybe you should consider a different entity or tax status. The discussion-- comparing the pros and cons with your goals-- would look the same. An attorney can help guide you through this process, and is probably worth the cost in the long run.

Palo Alto Business Attorney

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Answered on 8/26/10, 10:03 am
Timothy McCormick Haapala, Thompson & Abern, LLP

Mr. Martin is quite correct that you should spend a little time and money with an attorney going over your plan in more detail and evaluating options. Not all non-profit statuses are cumbersom. The one that is the big challenge is 501c(3) charitable non-profit status. That is most definitely not the only type of non-profit, however. What makes the 501c(3) special is that it can accept tax deductable donations. As a result it comes with lots of restrictions and requirements. Very few trade associations, which is what it sounds like you are doing, bother with 501c(3) status because a) they don't need tax deductable donations (trade association dues and fees being deductable business expenses already), and b) they do things that don't qualify as a charity anyway. Although it is not my specialty, I have incorporated a number of businesses, including several non-profits, have served on several corporate boards, including each of the non-profits I helped form, and currently serve as CFO of the McCullum Youth Court (though I did not incorporate that organization). I maintain client service facilities in Cupertino and San Jose. If you would like to arrange a free inital consultation to see if you would like to hire me to assist you with your project, please let me know.

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Answered on 8/26/10, 10:36 am

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