Is an LLC the best way to setup a non-profit?

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Is an LLC the best way to setup a non-profit?

I am in the process of starting a non-profit. From my research it seems an LLC would be the best to form it under. I would like to confirm this before filing.

Asked on January 2, 2012 under Business Law, Texas

Answers:

Kenneth Avila / Kenneth Avila, Patent Attorney

Answered 9 years ago | Contributor

There are three basic types of business structures - partnerships, LLCs, and corporations.  For non-profits partnerships are not preferred as it is difficult to attract financial contributors and all of the principles are fully exposed to liability from those outside of the partnership and from each other.  As between Corporations and LLCs, corporations have certain advantages:

  1. Ownership interests are freely transferable.
  2. Corporations are backed by years of legal cases and are better understood by the courts.  As a result you may not have to go to trial in a lawsuit as compared to a LLC.  However LLCs are catching up.

In all other areas LLCs have advantages over corporations.  Here are some:

  1. LLCs have great flexibility as to their structure.
  2. LLCs do not require as much record keeping as corporations
  3. LLCs have certain tax advantages over corporations when it comes to moving assets in and out of the LLC.
  4. LLCs are better protected as a business as to personal lawsuits against owners.

So your research is correct.  Moreover there are a number of websites that will assist you in filing the necessary paperwork with the Secretary of State where you will create your LLC.  The one word of advice I will give you is to pay lots of attention to what is called your "Operating Agreement".  Attempt to cover as many situations as possible such as member resignation, death, expulsion, retirement, transferring of interest, and more.  Make a detailed list and take it to an attorney.  Have the attorney write up the agreement.  The rest you can take care of without much risk but not the operating agreement.  

Good luck with your non-profit

Kenneth Avila / Kenneth Avila, Patent Attorney

Answered 9 years ago | Contributor

There are three basic types of business structures - partnerships, LLCs, and corporations.  For non-profits partnerships are not preferred as it is difficult to attract financial contributors and all of the principles are fully exposed to liability from those outside of the partnership and from each other.  As between Corporations and LLCs, corporations have certain advantages:

  1. Ownership interests are freely transferable.
  2. Corporations are backed by years of legal cases and are better understood by the courts.  As a result you may not have to go to trial in a lawsuit as compared to a LLC.  However LLCs are catching up.

In all other areas LLCs have advantages over corporations.  Here are some:

  1. LLCs have great flexibility as to their structure.
  2. LLCs do not require as much record keeping as corporations
  3. LLCs have certain tax advantages over corporations when it comes to moving assets in and out of the LLC.
  4. LLCs are better protected as a business as to personal lawsuits against owners.

So your research is correct.  Moreover there are a number of websites that will assist you in filing the necessary paperwork with the Secretary of State where you will create your LLC.  The one word of advice I will give you is to pay lots of attention to what is called your "Operating Agreement".  Attempt to cover as many situations as possible such as member resignation, death, expulsion, retirement, transferring of interest, and more.  Make a detailed list and take it to an attorney.  Have the attorney write up the agreement.  The rest you can take care of without much risk but not the operating agreement.  

Good luck with your non-profit


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