The Differences Between Incorporation, Corporation & Non-Profit

by Christopher Raines; Updated June 26, 2018

The terms “corporation,” “incorporation” and “nonprofit” refer to the formation and structure of a business, charity or some other type of legal entity. A corporation is an entity that the law treats as a “person” in the sense of granting it certain rights. Incorporation refers to the actions that form a corporation. A nonprofit is a type of corporation whose structure and purposes differ from a business corporation. The description of the organization as a business or nonprofit can drive whether the participants wish to become a corporation and the actions needed to bring the corporation to life.

What is a Corporation

A corporation may own property, sue and be sued and conduct business in its own name. For a business, becoming a corporation grants some legal protections to the owners of the company and generally makes it easier to pool funding from a large number of sources.

Ownership interests in a corporation, called shares, can be sold, given and inherited. The corporation survives its owners and, in principle at least, can exist forever. The shareholders' liability for business obligations is limited to their investment; they do not risk their personal assets unless a lender or seller requires them to guarantee payment of the debts. A board of directors, elected by shareholders, manages the corporation.

What is Incorporation

Incorporation is the process that creates the corporation. The organizers must file articles of incorporation, or charter, with the state's corporations office. The corporation's "birth certificate" identifies the corporation’s name, which must be distinct from that of another corporation in the state and may not mislead. Other charter provisions include the address of the corporation’s main office, its life span -- which may be indefinite -- and a description of its anticipated business and activities or that the corporation is organized for all lawful purposes. The corporation is born when the articles are filed, unless the articles have a later effective date.

Nonprofits Explained

Nonprofit organizations use their earnings, funds and other resources to further their purposes and programs, rather than to distribute to owners and investors. The participants may, but do not have to, form a corporation. Typically, a nonprofit that depends on minimal funding and conducts limited activities does not need to incorporate. If the nonprofit does not incorporate, it is not required to file any organizing documents unless it seeks tax-exempt status from the Internal Revenue Service.

Organizing a Nonprofit Corporation

The charter for a nonprofit corporation will, as with a business corporation, have a distinct name, main office address and provide for a board of directors. Typically, nonprofits will state that the earnings or proceeds will not be paid to directors, officers or participants, except as payment for services they render to the nonprofit. To obtain a tax-exemption as a 501(c)(3) charitable organization, the corporation must, in the articles, state only a purpose defined as charitable, such as poverty relief, or that its purposes are limited to those in 501(c)(3). A nonprofit corporation does not have shareholders. It may have members who vote for the board of directors; if the corporation has no members, the board is self-chosen.

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