Equine Law Blog

Myths Regarding Non-Profit Corporations

Non-Profit Corporations

A non-profit corporation is a corporate entity that has been established under certain federal regulations.  Non-profit entities are primarily engaged in educational, scientific, religious, or charitable endeavors.  Entities that qualify for 501(c)(3) status can also enjoy federal and state tax-exempt status, and donations made to the entity by individuals may be tax-deductible.

Corporations that exist on a “for-profit” basis, such as Ford Motor Company, and non-profits share some common characteristics, such as:

• Shareholders, officers, directors, and members of these entities are generally protected from personal liability for any debts or obligations that the entity may incur in its business operations.
• Both entities can earn profits from their corporate activities.  In fact, many non-profit corporations earn very substantial profits, but they cannot distribute them.
• Both entities have boards of directors.

Myths

“Non-profit entities cannot be sued”

Non-profit entities can be, and sometimes are, sued.  The old rule of “charitable immunity” began well over 150 years ago under British law, when charitable corporations could not be sued by people who claimed to be injured from their activities.  This theory, in recent years, has become largely obsolete.

“Non-profit entities Don't need insurance”

Because non-profit entities face the risk of being sued, they can protect themselves with insurance.  The need for any coverage depends on the group’s activities, its state laws, and other factors.  Coverages can include director’s and officer’ liability (often called “D & O” insurance) that generally protects directors and officers from a claim or suit relating to the entity’s management; general liability that is designed to protect against claims or suits that arise out of the entity’s business activities; workers' compensation that addresses claims by employees who were hurt on the job; auto insurance if the non-profit owns vehicles; and event liability insurance if the group’s General Liability policy does not cover events.

“Non-profit corporations cannot make a profit”

Non-profit corporations can raise tremendous amounts of money, and many raise millions of dollars each year.  However, non-profit corporations cannot distribute their income or profits to their officers, directors, and members.

If you have any questions about non-profit corporations in the equine industry, please let me know.

Categories: Insurance