Building Your Business Becoming an Owner Business Types Non-stock Corporation By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on October 28, 2020 Share Tweet Pin Email In This Article View All In This Article What is a Non-Stock Corporation? Types of Non-Stock Corporations Non-Stock Corp Membership Forming a Non-stock Corporation Photo: Johner Images/Getty Images You might think that having shares of stock is a part of the definition of a corporation, but stock ownership isn't a requirement for setting up a corporation. Another option is non-stock corporation. What is a Non-Stock Corporation? A non-stock corporation is a corporation (either for-profit or non-profit) that does not issue shares of stock. Most non-stock corporations are non-profits, but they don't have to be. A non-profit corporation is non-stock by definition since the purpose of the non-profit corporation is not to pay shareholder dividends. Non-profit corporations often have members, but these members are not owners and they don't share financially from their membership. Note Each state has different laws regarding non-stock corporations. Check your state's division of corporations (usually in the state secretary of state's office) or similar state agency for more information. A for-profit corporation may be non-stock for several reasons: The corporation may be closely held (owned by only a few individuals} who have no interest in selling shares The corporation may be formed for a single, short-term purpose or a specific transaction. For example, the corporation may be formed to build an office building or another construction project The corporation may be formed solely for the purpose of working with another company or individual for a joint venture Who are the Owners of a Non-stock Corporation? A non-stock corporation may have owners, who are usually described as members. When you form a non-stock corporation, you must designate the conditions of membership and describe different types of membership. Non-profits set up as non-stock corporations typically have members, but these individuals are not owners in the sense that they receive a share of any money received by the non-profit.There may be a board of directors of the membership, with paid staff and executives. What Types of Corporations are Non-Stock? Other types of organizations may decide to set up a non-stock corporation, even though they don't want to claim tax-exempt status as a non-profit. Some other common types of non-stock corporations are: civic organizationscharitable or fraternal organizationsreligious organizations How Non-Stock Corporation Membership Works Most non-stock corporations are non-profits, and many have members. Most membership organizations are 501(c)6 organizations: business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues 501(c)(4) organizations: social welfare organizations, including civic leagues and local associations of employees, homeowners associations and volunteer fire companies Membership can be informal, with members receiving information and resources, but with no say in the running or governing of the organization. Formal membership gives members the right to participate in the governing of the organization. This might include electing board members, approving changes to the bylaws, and making major decisions for the organization. Because the non-stock corporation is a separate entity, board members and general members have the same liability protection as shareholders, executives, and directors of stock corporations. Forming a Non-stock Corporation in a State - An Example Virginia allows the formation of a non-stock corporation. Under this state's law, the corporation may not distribute dividends or income, except as "reasonable compensation" or upon the dissolution or liquidation of the corporation. To form this non-stock corporation, Articles of Incorporation must be filed with the Virginia State Corporations Commission. The corporation may have members and may designate classes of membership and rights/benefits to each class of members, including voting rights. Under Virginia law, the non-stock corporation is run by its board of directors, which appoints officers of the corporation. Non-Stock Corporations in Other States Delaware allows non-stock corporations, which are separate from non-profit corporations. This business type doesn't allow capital stock and it asks for conditions of membership, as stated in the by-laws of the corporation. Connecticut also allows non-stock corporations for non-profits. the corporation has several options for membership: No membersmembers who aren't entitled to voteOne class of membersMultiple classes of members Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Maryland Dept. of Assessments and Taxation. "Article of Incorporation for a Nonstock Corporation." Accessed Oct. 3, 2020. Virginia State Corporation Commission. "Virginia Nonstock Corporations (Including Nonprofits)." Accessed Oct. 3, 2020. State of Delaware. "Certificate of Incorporation A Non-Stock Corporation." Accessed Oct. 3, 2020. IRS. "Business Leagues." Accessed Oct. 4, 2020. IRS. "Types of Organizations Exempt Under Section 501(c)(4)." Accessed Oct. 4, 2020. BoardSource. "Membership Organizations." Accessed Oct. 4, 2020. State of Delaware. "Certificate of Incorporation for Non-Stock Corporation." Accessed Oct. 4, 2020. Connecticut. "Certificate of Incorporation NonStock Corporation." Accessed Oct. 4, 2020.