Types of Land Ownership
(Page 3 of 9)
November/December 1974
By Les Scher
THE NONPROFIT CORPORATION
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Another type of corporation you might investigate if you are not planning to make money on the land is the "nonprofit corporation." Your group must fit into one of the special nonprofit and nonpolitical categories, such as religious, educational, scientific, or charitable. If you qualify, the nonprofit corporation may not have to pay income taxes, and, in many states, will also be exempt from paying property taxes. However, you will have to maintain thorough financial records and file detailed tax returns covering the nature of your nonprofit operation.
Instead of issuing stock, the nonprofit corporation may sell or give "memberships" to the individuals, who elect a Board of Directors and vote on the operation of the corporation. Like a profit-oriented corporation, Articles of Incorporation and bylaws are required, and an additional application for nonprofit status must be made to the Internal Revenue Service and to the appropriate state agency, which determine whether the corporation is truly nonprofit and, therefore, eligible for tax exemptions.
Once formed, the nonprofit corporation remains in existence until it is "dissolved." This dissolution process could present problems to the individual owners of the corporation because the Secretary of State or state corporations official may determine that the corporation's assets were held in trust for the nonprofit purpose which the corporation claims to represent. This causes delays and legal problems when you try to sell the property and divide the profits among yourselves because the Secretary might attempt to prevent the profits from going to private individuals: If your group is now, or wants to become, a church or other nonprofit organization and buy land you will probably need a lawyer to get you through the legal paperwork involved in setting up the corporation in the best manner possible to meet your needs.
FORMING AN UNINCORPORATED NONPROFIT ASSOCIATION
A religious, social, educational, or other nonprofit group can also form an unincorporated nonprofit association to buy land. Although the group must appoint one of its members as a trustee who takes the title to the land in his name, the organization, rather than the trustee or other members of the group, retains liability for its own debts. The trustee only acts according to the charter and bylaws of the organization.
In a nonprofit association, no single person owns any part of the land. The members of the group usually agree to pay rent to the association for living on the land, which can be used by the association to pay its mortgage and other expenses without making a profit. This type of purchase appeals primarily to communes, ecological groups interested in preserving open space, and people interested in forming some type of community in the country without actually being personal landowners.
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