Hi Lee Phillips here again.
I want to talk about using an LLC as a nonprofit organization.
People get the idea that they're gonna have a non-profit.
Well, you're probably not going to use an LLC
as a nonprofit organization.
The primary reason is
the LLC that's the nonprofit
has to be solely owned
by another entity
which in and of itself is a nonprofit
and you're not a non-profit.
Now you can set up a nonprofit corporation
and have it be owned by individuals who are not nonprofit in and of themselves
but the LLC is different
it has to be owned only by a member
the owner
that is in and of itself a non-profit
and it has to meet the "Limited Liability Companies as Exempt Organizations - Update" from the IRS
and there are a dozen things that you have to follow
in order to have your LLC qualify
as a non-profit.
The organizational papers the papers that
the papers that you file to set up the LLC as a non-profit have to specifically state
that the only activities that the LLC can do are in fact
related to the nonprofit function of the LLC
and that's going to be education
it's going to be servicing somebody
there are a number of criteria that the IRS has
things that they consider to be nonprofit type activities.
The LLC has to be operated exclusively
to further the charitable purposes of that thing
and this all has to be written down in the organizational papers themselves.
The organizational language has to require that the LLC members be a non-profit
a 501(c)(3) or some such organization
a government organization which is nonprofit
and you're not a government organization
that's nonprofit.
It's got to prohibit
any direct transfer of the assets of the LLC
to something or somebody other than a non-profit.
It's got to guarantee
that upon dissolution of the LLC
all of the assets of the LLC go to nonprofits.
It's got to require that any amendments to the LLC
are consistent with the 501(c)(3) requirements.
It's got to prohibit the LLC from merging with anything or anybody
that's not in and of itself a non-profit.
So all of these things
the language has got to contain an acceptable contingency plan
acceptable to the IRS, a contingency plan
that in the event one of the owners suddenly becomes a non
a non non-profit
does not qualify as a non-profit
then what happens?
The provisions must be consistent with all of the state laws
governing nonprofits.
The bottom line is
the LLC is not the entity
the legal structure that you want for a nonprofit organization.
That's going to be your corporation
and corporations do have advantages over LLC's
and this is one of those advantages
that a corporation has over an LLC.
The LLC is just too restrictive
for most people
most organizations
to consider as the legal structure for a spin-off nonprofit
or the original formation of a non-profit of any type.
This is Lee Phillips talking about
using LLC's for nonprofit organizations