Does a Nonprofit Have to Have Members?

By Cindy DeRuyter

Does a Nonprofit Have to Have Members?

By Cindy DeRuyter

Nonprofit corporations are organizations that are not driven to make profits. Formed under state-specific laws, nonprofits benefit the public or specific groups and communities in some fashion. Some types of nonprofit organizations have members who have voting rights or receive some type of benefit from the nonprofit, while others are nonmembership companies. State laws and Internal Revenue Service (IRS) regulations dictate that some nonprofit corporations must have members.

Membership Defined

The term "member" is somewhat misleading when applied to nonprofit organizations, as it brings connotations of ownership. After all, the owners of limited liability companies are called members. However, nonprofit companies do not have owners. IRS regulations are clear in establishing that nonprofit corporations' earnings cannot inure to the benefit of any individual.

Although nonprofits do not have owners in the sense that for-profit corporations have shareholders, there are two contexts under which nonprofit organizations have members. In the first, nonprofit members may have the rights to call meetings, vote on company actions, elect directors, and access company records.

Under the second type of nonprofits with members, individual donors or customers do not have governance authority but instead obtain some type of benefit by virtue of their contributions to or relationships with the nonprofit organization.

State Law Requirements

Individual state laws govern the formation and ongoing maintenance of nonprofit corporations. Some states' laws for nonprofit organizations mirror the laws governing for-profit companies, substituting the word "member" for the word "shareholder." In these states, nonprofit members vote on and approve business decisions for the company.

Some states' laws require nonprofits to have members but permit organizations to limit membership to their boards of directors. For example, nonprofit corporations organized under Delaware law must have members, but the law permits nonprofits to have just one member. This is beneficial for nonprofit companies that want to limit voting and governance so all decision-making authority rests with the board of directors.

Other states do not impose membership requirements on nonprofit companies but permit nonprofits to have members.

Membership and Types of Nonprofits

In some states, state laws do not impose membership requirements on nonprofit companies. However, IRS regulations might.

The IRS recognizes 27 different types of nonprofit companies. Certain types of nonprofits, including nonprofits organized as "social clubs," must be supported by membership dues.

Articles of Incorporation and Bylaws

For nonprofits required to have members by IRS rules and in states where the law allows but does not require membership, a nonprofit corporation's articles of incorporation generally include provisions about membership. This legal document, filed with the Secretary of State or other business authority, may address whether or not the organization will have members, whether members must pay dues or fees, and the extent to which members enjoy liability protection for the nonprofit's actions or financial obligations.

Nonprofit corporations' bylaws should clearly define the company's membership structure, if applicable.

If you intend to form a nonprofit company, it is important to ensure you follow your state's laws and IRS requirements. Start your Nonprofit Corporation or hire a business attorney to ensure your nonprofit organization complies with applicable membership rules and provisions.

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