How difficult is it to convert from an LLC to a non-profit 501(c)3?
I haven't incorporated yet, but I'm learning toward an LLC for now, but may eventually want to have an LLC arm and a non-profit arm. How does this work with tax status? How easy is it to move money that comes in through the LLC to the non-profit and vice versa?
Pamela, Actually it isn't really that hard, but you should consult a legal professional first.
Your next step would be to contact the IRS to inform them of your change in status, then your downstream licensing; State, County, city or town.
You will of course need all your paperwork, that is why you need to speak to a legal professional, they will guide you through the process regarding the local ordinances.
With a good productive 1/2 hour with legal, you should be able to complete the task in several hours or the phone, keep a fax machine handy. Good luck
There are now so many non profits out there that from my own research, the IRS and others recommend you contact an existing non profit to see if you can work with them first before trying to start an all new non profit. A for profit should be left as just that. You do not switch them. You can combine them, Colonial Williamsburg is an entity that uses both.
A.) A for profit is a shell designed to make money for it's owners.
B.) A non profit is a shell designed to take money in for beneficiaries pre designated.
They can be used in combination. The non profit can lower the tax burden for the for profit while the for profit increases the mass of the non profit.
Now why would you want to move money from a non profit to a for profit? That will only get you in trouble. Not recommended. A non profit can still run a business.
Please post a more objective plan to determine a better answer outcome.
It depends on the state that you are in, but the biggest thing to worry is if you can prove that you offer benefits to society and you are financially structured correctly.
I would absolutely consult with your business attorney!
Pamela, you would not "convert from an LLC to a 501(c)3". The 501(c)3 is a tax classification that could be obtained by an LLC. If you want to have a separate "arm" to be the not for profit business, it may make sense to form a series LLC. In this way, one LLC in the series could be a for profit entity and one could be the not for profit. I cannot give you specific advice until I know more about the business. I strongly urge that you get professional help for this. You need to make sure that the not for profit is set up properly so that you do not lose the status. It will be well worth it to spend the money on an attorney up front rather than face penalties and problems later on.
A for-profit entity such as an LLC has owners. A non-profit entity does not. It is extremely difficult to change from one to another. If your goal is to make a profit, a non-profit is always the wrong choice. I agree with what Todd wrote above. Having a business is difficult enough, but a nonprofit 501(c)(3) requires significantly more work. You absolutely should consult with a business/tax attorney before getting started. Feel free to call me and I will answer your questions in more detail.
You can have a for-profit entity (such as an LLC or corporation) and a not-for-profit entity (such as a 501(c)(3)) that have contractual relationships to provide goods or services to each other. There are complicated tax issues associated with this structure so be well advised about the “dos” and “don’ts” of this arrangement. A 501(c)(3) is a big undertaking to organize and get approvals from the I.R.S.