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The Purpose Clause in Not-For-Profit Articles of Incorporation

Most not-for-profit corporations opt to incorporate under state law. This step is taken prior to seeking the very valued 501(c)3 status. Initially, drafting the certificate of incorporation can seem fairly easy and New York State offers examples to help guide people forming not-for-profits. Most of the information the creators need to provide are fairly self-explanatory and include things like the name and addresses of a minimum of three board members. Those who chose to draft these articles on their own should be aware of the importance the “purpose” section is, however.

The purpose clause is probably the trickiest part of the certificate. Although businesses in New York are allowed to use all encompassing language, allowing the business to participate in “all lawful activity,” not-for-profits must be more specific than this. Additionally, even if the state approves the purpose, when the not-for-profit goes to apply for its 501(c)3 status (which is granted by the IRS, not the state) the IRS will carefully review this purpose before ruling on the exemption request, so all purposes need to be drafted with the IRS standards in mind. The goal is to be as specific and as broad as possible in the purpose. The purpose clause should be drafted so as to avoid the need to amend it later should the not-for-profit wish to expand to a different kind of business, but not be so expansive that the not-for-profit needs to obtain a large number of consents from state agencies.

All in all, it is wise to carefully review your purpose clause on multiple levels before submitting it to the Department of State.

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Starting Small – The Differences Between a Sole Proprietorship and a Single LLC

One of the first choices an entrepreneur has to make when she decides to start a business is choosing which business entity is right for her.  If she is opening a business by herself (meaning without any additional partners or business owners) then she has four options to choose from:  a sole proprietor, a single LLC (or PLLC), an “S” corporation or a “C” corporation.  Because starting a corporation involves greater paperwork and cost, solo business owners with limited funds and resources often choose between a sole proprietorship and a Single LLC (or PLLC).

These two choices are similar, and in both cases the entity is taxed as an individual, but it is important to be aware of the differences when deciding if one of these options is right for you.

What are the differences between these two options?

Paperwork and Fees

Sole Proprietors do not have to fill out any paperwork or pay any fees to begin doing business under the name of the individual business owner.  The business owner can simply hang a shingle outside her door and begin operating.  Individuals doing this should, of course, be aware if there are any licensing requirements for the type of business they are undertaking.

To form a Single LLC the individual business owner must file with the Secretary of State, publish notice in two newspapers, and pay a fee to the State of New York.

Liability

In the case of a Sole Proprietorship, both the business and personal assets of the individual owner are exposed and could be accessed in order to pay off outstanding business debts.  In other words, the sole proprietorship offers no protection of the business owner’s assets.

The personal assets of the owner of a Single LLC are protected in commercial matters, and only the assets of the LLC are exposed to commercial liability.

Liquidation/Merger of the Business

A Sole Proprietor may simply cease doing business and does not need to alert the government.

The owner of a Single LLC must terminate the LLC by filing a notice with the State in order to dissolve the entity.

Being aware of the differences between these two common choices allows a solo entrepreneur seeking to start a small business the power to decide what is right for her organization.