To operate a tax exempt organization, you must choose a legal structure. In North Carolina, you have a choice of three: (1) a nonprofit corporation, (2) an unincorporated association, or (3) a charitable trust.

NC Nonprofit Corporation Benefits

Our structure of choice is the NC Nonprofit Corporation. If it qualifies, NC Nonprofit Corporations are exempt from federal and North Carolina state tax. Not only will the corporation not pay income tax on profits that are related to its exempt purpose, but its donors will also receive a tax subsidy. An exempt corporation may also qualify for preferred postal rates and employee retirement benefits.

Directors and officers benefit from limited liability in that they are not personally liable for the debts of a nonprofit corporation.

Unincorporated Associations and Charitable Trusts

In North Carolina, an unincorporated nonprofit association is simply a group of two or more people who agree to work together for a charitable purpose. For example, a nonprofit association could raise money for disadvantaged children to go to summer camp or even run a local food bank.

In North Carolina, many of the benefits and protections available to incorporated entities are also available to unincorporated nonprofit associations. Limited liability for association members and the right to buy and sell property are two significant benefits. However, an unincorporated nonprofit association simply does not work as a tax exempt organization.

Most importantly, the IRS will want to see organizing documents and other administrative policies which an unincorporated association may not have. Donors may also be put off by the lack of an organizational structure.

A Charitable Trust is an estate planning tool where a person, known as a settlor, gives their property to another (a trustee), to hold on their behalf, and distribute to a class of individuals or the general public chosen by the settlor. As trusts are estate planning tools, and best created by estate planning attorneys, they are beyond the scope of this guide.