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separate entity. For instance, courts examine whether the corporation has
adequate funds to pay its creditors, whether the individuals commingled corporate
and personal funds on a regular basis, whether the individuals failed to keep
proper corporate records and whether the corporation generally failed to act like a
corporation. The IRS may assess taxes and penalties personally against the
corporation’s principals if it concludes the corporation is not a valid separate entity.

A principal of a corporation (usually an officer or director) may also become
personally liable for the liabilities of the corporation if the individual fails to make
clear to persons with whom he or she is dealing that he or she is in fact acting as an
agent of the corporation and not as an individual. All business transactions of a
corporation should clearly indicate that they are corporate transactions, and the
representative capacity of the officers or directors acting on behalf of the
corporation should always be disclosed.

c. Preventative Action

To ensure that a nonprofit corporation is considered a separate entity,
regular meetings for both the board of directors and members (if it is a
membership organization) should be held meticulously. The board should also
ensure that written minutes of these meetings are prepared and placed in the
corporate record book. Nonprofit corporations should also be especially diligent in
maintaining sufficient funds to pay their debts and in segregating corporate funds
from the personal funds of the corporation’s officers and directors. A failure to
segregate funds could also result in loss of tax-exempt status. See the discussion in
Chapter 29 on private inurement.

In all dealings on behalf of a nonprofit corporation, a director or officer
should clarify the capacity in which he or she is acting. In addition, all signatory
lines for contracts and other documents should identify the corporation by its full
legal name together with the title of the officer or director signing the document. If
the name of the corporation and the title of the signatory are not written above or
under the signature line, the officer or director should add these by hand under his
or her signature.

The following chapters illuminate the importance of explicit and robust
policies, systems, and procedures for a nonprofit corporation; clearly defined roles
and responsibilities for directors, officers, staff, and volunteers; and open and
trusting relationships among all individuals and stakeholder groups. These

WASHINGTON NONPROFIT HANDBOOK -33- 2018