The tax-exempt status of a non-profit is quite alluring. In addition, non-profits are eligible for a variety of government grants and funding. Like many business owners, you may have wondered whether your firm could reap the benefits of being a non-profit. After all, who wouldn't like to pay less for postage? However, converting an existing venture to not for profit status is not as easy as just saying goodbye to your tax bills.
Is your business even eligible?
The first thing to look at is whether your business could even qualify as a non-profit organization. The most common form of non-profit is known as a 501(c)(3) charitable organization; when these organizations receive donations, the donors can claim deductions on their income taxes. In order to become a 501(c)(3), a company must be dedicated to a charitable purpose or serving the public good. For example, educational ventures, religious organizations and public assistance groups (that feed, clothe, house or otherwise serve those in need) all qualify. The group must benefit the public, as opposed to a private group. A 501(c)(3) must also be incorporated.
There are additional types of non-profits; groups such as business leagues, social clubs, and labor and agricultural organizations may be able to form tax exempt non-profits. The IRS offers details on groups that are eligible at: http://www.irs.gov/charities/nonprofits/content/0,,id=132157,00.html.
So, if you sell luxury Alpaca mittens or make gourmet chocolates, your tax-free dream is probably just that... a dream. On the other hand, if you have been making software to help underprivileged children attain literacy and you want to start giving it away for free, you should keep reading...
So, what would I need to do to convert my business?
Start with your business plan. Make sure you have thoroughly outlined not only your goals, but what it is about your business that makes it a better non-profit than a for profit venture; include information on your mission, pursuits, where your company will get income and how it will be allocated. You will also need to develop bylaws by which your non-profit will abide.
Are you already incorporated? Since incorporation is necessary for non-profit status, you will need to factor in the costs of incorporation when you weigh your choices. Among the decisions to make include what state in which to incorporate, since the laws for corporations vary dramatically. If you are already incorporated, you will need to change your corporation status within your state to allow you to seek non-profit status; make sure to check your state laws for details. Some states require pre-approvals before non-profit corporate filings. As a corporation, you will be required to hold regular board meetings.
Next, you will have to do paperwork to change your business' filing status. The IRS will want information about the changes in your organization that are prompting the change (other than your clever idea that you could avoid paying taxes). Have you grown to where you feel compelled to serve your community at large? Have you discovered a new educational method you must share with schools? Consider checking with non-profit attorneys in your state as to whether your business will legally quality.
I am very interested in turning my LLC into a Non profit. My company is real estate, however, my business plan is designed to help low income families and struggling homeowners. The company is young ( Oct 2009). I think that your services can help me with changing over.
I have a sole proprietorship that is both online and localized and my products are personally tailored 100% organic body care items such as soaps and lotions. The packaging and informative literature that accompany my products are environmentally responsible and reusable/biodegradable glass and plant cellulose. I am interested in converting this business into a 100% non profit organization that caters to the needs of the less fortunate in my community. Is it possible to offer what could be viewed as a luxury item while maintaining non profit status? At the point where I am hoping to make the switch, I will have been in the business for approximately three years.
I have a home care business LLC that I would like to turn into nonprofit I services consist of helping people with disabilities ... Children adults and the ederlyin in the community stay n their home instead of havin to go to nursing home..... We provide transpatation to and from doctor appts. Grocery shopping and daily activties in the community..... We also assist with laundry, light housekeeping bathing grooming meal prep entertainment medication reminders and so much more so fo I quality for non profit
I am thinking about doing the same thing to service non-English speaking senior in my community
I own a successful, profitable restaurant. I want to convert my restaurant to non-profit status and donate 100% of the profits to various charities. Can I do this and convert the debt on the business to the non-profit organization I've created. A prtion of proceeds from the business will go to debt service and the rest will be to charities.
I also have many employess. Will any of them reap benefits for being employed by a charity?
Hi Robert, thanks for your question. We wish you lots of success with your business. Unfortunately, we can't advise you in this matter. LegalZoom's specialty is legal documents, not legal advice. We can help you find a lawyer to answer your questions, though. Go ahead and visit our attorney referral network: http://attorneyconnect.legalzoom.com
I formed an LLC with Legal Zoom that I wish to convert to a non-profit. My business is a social networking group/online support group for individuals with vitiligo, which is the skin disorder many refer to as the Michal Jackson disease.
We do meet two per year and we host an annual conference and have just done our second one. We are growing and want to make these changes now.
So, what do I do? Where do I begin? Help!
Thank you.
Like Wendell, I have the same situation of wantinmg to turning my LLC into a non-profit organization, what shall I do?
If i qualify to change my business from an LLC into a
Non-Profit, can i keep my business name? How can i protect
or trademark or copyright my business name to own it????
I started a DBA with legalzoom about a year ago and I am interested in converting it to a non-profit corp. Currently we offer low-cost and no cost psychotherapy to the community. We have several no cost programs that are offered to the community, including support groups and free therapy for low income clients. Does this qualify us to become a non-profit corp?
I currently own a preschool center that is set up as a for-profit business. The previous owner had it as a non-profit business and did quite well. When I bought the business, I was highly encouraged to go for-profit, although I wanted to be a non-profit. I have owned the center for nearly three months and am regretting being talked into having the center a for-profit. We serve low-income families in a low income neighborhood and is quite content with just paying the bills and staying open. I want to switch so I may pursue grants that will aid in the education for my children at the center, the staff that want to go to school for early education and for some improvements to our play yard. Any help or advise would be greatly appreciated!
Thank You!
I am in almost the exact same situation. Were you able to find out anything about this? Feel free to e-mail me.
Thanks!
Mary
My husband and I have grown a child care busness from 38 children to approximately 250 today. Over the last 30 years we have successfully added grades and relocated and built a new facility to address the education and care of children from Infant through Grade 7 (this year) to Grade 8 next year as parents have been requesting alternative choices to public middle school. We are finding that our comprehensive services for our elementary aged children are not accessible to all as tuition vs. public education costs have limited our student body to those who can afford the services. As we feel that our school as a whole would benefit the community more by offering a non profit elementary that is able to raise funds to offer scholarships and tuition assistance to the public who wish to choose an independent school, we are considering separating the two entities ( we are incorporated)retaining the Child care portion as the for-profit but branching off the elementary into a non-profit. Can you give us some idea if this is possible? Thank you.
I do not have the answer to your question, however, I am amazed at the fact that I am beginning a non profit that will have infant thru 4th grade and I was wondering if you could give me some pointers on how you expanded your business.
Thanks
I run a mobile hair service but would like to incorporate it into the community as a social enterprise/charity organistaion where there can also be braidinf activities, gettogethers, workshops and exhibitions. This is to encourage people bvack into work to use their talents and giftings. Pls what is the best way to go about this so i can also make some kind of profit formyself even though i want it to be community based/ a charity.
I run a website for the gifted population in the state of NH. Our mission is to support the needs of the gifted and to raise awareness of the educational needs of gifted students. To bring gifted education and funding to the state. I set up the business as an LLC, now that our members have increased, I would like to change it to a non-profit. Is it possible and how do I go about making the necessary changes?
Thank you in advance.
Hello, I was convinced a couple years ago to start a little business to help support medical relief and educational work I do locally and overseas. It never really worked so I am now hoping to convert my California corporation to a 501 (c) 3 not for profit. I can't find exactly what I need to do this. Do you have any instructions and the correct forms? Thank you! -Amy
Dear Amy,
Thank you for contacting us for your business service needs. LegalZoom can assist you to convert or form as a new Non-Profit Corporation in California. We can file the necessary documentation on your behalf as well as provide services to prepare the 501(c)(3) application on your behalf. Please contact us directly at (888) 381-8758 to speak with a Business Services Specialist.
Sincerely,
LegalZoom Staff
I formed a corporation to be nonprofit back on 2008, but I didn't know about the Form 1023, so I didn't file it. Is there any way I can get the C3 status now - or do I have to recreate the business?
Dear LegalZoom Customer,
Thank you for contacting us for your business service needs. Typically, many Non-Profit Corporations may need to apply for 501(c)(3) tax exemption status with IRS Form 1023 within 27 months of formation. However, you may want to speak with the IRS directly for more information if you are still eligible.
LegalZoom can assist you to prepare the documents for the 501(c)(3) application with the IRS. Please contact our Business Services Division directly at (888) 381-8758 to speak with a specialist directly.
Sincerely,
The LegalZoom Team
We would like to change our LLC to a 501 (c) 3. We produce educational books and tours focused on our local county's history. It is our intent to educate and capture history for future generations, not to make a profit. Would we qualify?
Hi Sue,
Legalzoom can assist with a profit corporation converting to a non-profit corporation and then eventually help prepare for the 501c3 application for tax exempt status. If you would like to convert and LLC to an tax exempt LLC, you can either contact the IRS directly or get assistance from an attorney for this service. If you have anymore questions please let us know. If you have any other questions feel free to let us know.
Sincerely,
LegalZoom Staff
We are looking to switch over from "for profit" to "non profit" to continue teaching in the local schools in our area. Since income coming in from the students will now have to be donations how will we be able to cover our expenses for overhead if donations coming from the parents are not a certain amount. Can we call the enrollment payments a "fee" much like the YMCA does as a non-profit organization.
Thanks!
Can 501c3 non-profits register a DBA in California if they want to? We want to raise money under the name of one of our programs, not the organization's name.
My motessori academy just opened but it opened as a profit organization and I wanted it to be non-profit, how can this problem be solved. What forms will I need from IRS.
I need to find an attorney familiar with forming a non-profit organization in Hawaii.
Hi there,
I am currently a sole proprietor and have an online and offline service specialized in personal development. I plan on promoting a book and workshops to the public for profit however, I am finding that I am also doing educational events on happiness to educate parents and kids.
Would it make sense to have two seperate types of organizations so that the expenses toward educational events to the parents/kids would fall under a 5013c?
Whereas my book and personal coaching would be an LLC or S Corp?
I live in CA, which can be a sticky state about not for profit entities.
Your response would be helpful. Thank you!
My partner and I currently own an LLC in MN and want to know if I can change it to a non profit. We would like to know if we need to change the name or if we have to dissolve the LLC and start again. We would prefer to change it to a non profit instead. We have an EIN already and need to know if we need a new one?
Anna, an LLC cannot qualify as a 501(C)(3) organization unless its members are all 501(c)(3) organizations. Therefore, your current LLC would not satisfy the organizational test under Section 501(c)(3) since you and your partner are the members / owners.
Assuming you have weighed the pros and cons of operating as a nonprofit vs. operating as a for-profit business (there are numerous factors to consider), and assuming you want to seek 501(c)(3) status, I would recommend forming a nonprofit corporation. It will need to secure its own EIN # because the nonprofit corporation will be a separate legal entity from the LLC.
Thanks, Keith
I have a limited partnership company in NJ with me and my partner and want to convert it to a Non Profit 501c3 but also dont want to change our name since it is very well known in our area, is this possible
Thank you for contacting LegalZoom! We would love to be able to help you, please feel free to give our Business Formations department a call for further information at (888) 381-8758 or e-mail us at bizsales@legalzoom.com.
I am in the beginning process of creating a business plan, budget, and research. I am very torn whether to start organization as a business LLC or non-profit. I prefer NPO, but I am limited on time and starting funds. Can I start a for profit LLC and then when I'm more organized and more financially able, turn it into a NPO? I'm hoping to generate income to help support my family and buy time to run it as a nonprofit later.
Hi Chelsea! LegalZoom can certainly assist you in discussing the various options and services we provide. Give us a call at (888) 381-8758 (M-F) or e-mail us at bzsales@legalzoom.com and we can give you more information.
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