Nonstock Corporation

Definition

A Nonstock Corporation is a type of corporate entity that does not issue shares of stock. Instead of shareholders, this corporation is owned by members who join the organization according to a membership charter or agreement. Nonstock corporations are commonly formed for non-profit purposes, including educational, charitable, or cooperative projects. Members of a nonstock corporation typically enjoy membership rights, including governance and voting privileges, rather than holding equity interests like shareholders in stock corporations.

Examples

Non-Profit Organizations: Many organizations serving educational, religious, and charitable missions are structured as nonstock corporations. For example, a non-profit educational institution or a charity organization is often a nonstock corporation.
Cooperatives: Organizations like cooperative grocery stores or credit unions might be established as nonstock companies where members are both users and owners of the services provided.
Homeowners Associations (HOAs): These are frequently organized as nonstock corporations, with homeowners in the community as members who vote on community matters and governance.

Frequently Asked Questions

Q1: Can a nonstock corporation make a profit? A1: Yes, a nonstock corporation can generate revenue and make a profit. However, profits are typically reinvested in the corporation or used to further its mission. Nonstock corporations do not distribute profits as dividends to members.

Q2: How do you become a member of a nonstock corporation? A2: Membership procedures vary by organization but typically involve meeting certain eligibility criteria and agreeing to the terms set forth in the membership charter or bylaws.

Q3: Are nonstock corporations always non-profit? A3: While many nonstock corporations are non-profit, not all nonstock corporations operate on a non-profit basis. Some may function as cooperatives or other structures where membership, rather than profit distribution, is the primary focus.

Q4: What governance structure does a nonstock corporation follow? A4: Nonstock corporations often have a board of directors or trustees who oversee the organization’s activities. Members may participate in governance through elections and voting on major decisions.

Q5: How does one dissolve a nonstock corporation? A5: Dissolution involves legal and procedural steps, including approval from the board of directors and/or members, filing dissolution paperwork with the state, and settling any debts and liabilities.

Membership Charter: The foundational document that outlines the rights, responsibilities, and structure of membership within a nonstock corporation.
Non-Profit Corporation: A type of nonstock corporation formed for charitable, religious, educational, or scientific purposes where profits are not distributed to members.
Cooperative: A business or organization owned and managed by its members, who use its services or products.
Bylaws: Internal rules and guidelines adopted by a corporation’s board of directors to manage its operations and structure.
Board of Directors: A group of individuals elected by the members to govern the activities and management of the corporation.

Online References

Suggested Books for Further Studies

“Nonprofit Law and Governance For Dummies” by Jill Gilbert Welytok
“Understanding Nonprofit Law and Finance” by Erik Estrada
“The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization” by Gary M. Grobman
“Cooperative Governance: A Fifty-Year Perspective” by Brett Fairbairn
“Managing Nonprofit Organizations” by Mary Tschirhart and Wolfgang Bielefeld

Fundamentals of Nonstock Corporation: Business Law Basics Quiz

### Can nonstock corporations issue shares of stock? - [ ] Yes, they can issue shares like any other corporation. - [x] No, they do not issue shares of stock. - [ ] Only publicly traded nonstock corporations can issue shares. - [ ] They issue shares but do not distribute them. > **Explanation:** Nonstock corporations do not issue shares of stock. Instead, they are owned by members under a membership charter or agreement. ### Are nonstock corporations always non-profit? - [ ] Yes, they must be non-profit. - [ ] No, they are typically for-profit. - [x] No, while many are non-profit, some can operate on a for-profit basis. - [ ] Yes, they can only generate revenue for non-profit purposes. > **Explanation:** While many nonstock corporations are non-profit, this is not a requirement. Some nonstock corporations may function on a for-profit basis, such as cooperatives. ### What document often outlines the governance and rights of members in a nonstock corporation? - [ ] Articles of Corporation - [ ] Shareholder Agreement - [x] Membership Charter - [ ] Employee Handbook > **Explanation:** A membership charter or bylaws typically outline the governance and rights of members in a nonstock corporation. ### Who typically governs a nonstock corporation? - [ ] Stockholders - [x] A board of directors or trustees - [ ] Government officials - [ ] CEOs only > **Explanation:** Nonstock corporations are typically governed by a board of directors or trustees who oversee the management and activities of the corporation. ### How do members of a nonstock corporation typically participate in the governance? - [ ] By purchasing shares of the corporation - [x] Through elections and voting on major decisions - [ ] By receiving dividends - [ ] By being employees > **Explanation:** Members of a nonstock corporation typically participate in the governance by voting and through elections, rather than through share ownership or receiving dividends. ### What is one common characteristic of nonstock corporations? - [ ] They distribute profits to members. - [x] They reinvest profits into the corporation. - [ ] They cannot make any profit. - [ ] They issue shares to members. > **Explanation:** One common characteristic of nonstock corporations is that they reinvest profits back into the organization rather than distributing them to members as dividends. ### Can anyone join a nonstock corporation? - [ ] Yes, anyone can join without restrictions. - [ ] No, only government employees can join. - [ ] Yes, but only through buying shares. - [x] No, membership is often subject to eligibility criteria outlined in the membership charter. > **Explanation:** Membership in a nonstock corporation is typically subject to eligibility criteria as defined in the membership charter or bylaws. ### For what purposes are many nonstock corporations formed? - [x] Charitable, educational, or cooperative purposes - [ ] Stock trading and investments - [ ] Manufacturing and production - [ ] Real estate development > **Explanation:** Many nonstock corporations are formed for charitable, educational, or cooperative purposes. ### Can members of a nonstock corporation receive dividends? - [ ] Yes, they receive large dividends. - [ ] Only if the corporation is profitable. - [ ] Yes, but only if they hold shares. - [x] No, they typically do not receive dividends. > **Explanation:** Members of a nonstock corporation typically do not receive dividends. Profits are usually reinvested into the corporation or used to further its mission. ### What typically happens to a nonstock corporation's revenues? - [ ] Distributed as dividends to members - [ ] Invested in stock market - [x] Reinvested into the organization or used to fulfill its mission - [ ] Given away to external shareholders > **Explanation:** Revenues of a nonstock corporation are commonly reinvested into the organization or used to fulfill its mission rather than being distributed as dividends to members.

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