*We're building a new church and I have a couple of questions. We're changing the name, charter, etc; etc; I know that the church should be incorporated but should it be an L.L.C.? Or does our being a Non-profit provide us with some sort of "shield"? I know that L.L.C.'s have the "corporate veil".... *Can a non-profit own a "for profit" business? *I've studied business law but I think my courses only scratched the surface...can anyone answer these questions? I will appreciate any help!!
Your church needs to consult experienced counsel. These questions really can't be adequately dealt with in a forum like this. Churches enjoy a special status in the law. There can be no REQUIREMENT for a corporate charter but off hand I don't know whether there would be any advantage to taking out a nonprofit charter anyway. I do know that non profits may run for profit businesses but if they do, they must meet all requirements and pay all taxes in connection with the for profit enterprise. Again, I urge you to seek competent professional advice. Many lawyers are willing to donate a certain amount of their time to churches for this purpose in order to meet their annual pro bono requirement.
We are going to seek counsel, I just wanted to get some questions/ideas/suggestions from you guys to throw at him/her. I asked similair questions of my professors and I never got an answer so I figured it's a pretty complex area.
Before I begin: DISCLAIMER: LEGAL INFORMATION IS NOT LEGAL ADVICE. DO NOT TAKE ANYTHING YOU LEARN HEREIN, OR ANYTHING YOU LEARN ON A WEB SITE LINKED-TO HEREFROM, AS "LEGAL ADVICE" UPON WHICH YOU MAY RELY, EVEN IF THE WORD "ADVICE" OR ANY OTHER WORDS OF CLEARLY SIMILAR MEANING AND INTENT ARE USED. TALK TO AN ATTORNEY LICENSED TO PRACTICE LAW IN YOUR JURISDICTION BEFORE TAKING ANY ACTION. USE THE INFORMATION GLEANED HEREFROM SIMPLY AS A MEANS OF BECOMING SUFFICIENTLY FAMILAR WITH THE GENERAL SUBJECT MATTER THAT YOU MAY HAVE HIGHER-QUALITY CONVERSATIONS WITH YOUR ATTORNEY, AND/OR SO THAT YOU MAY ASK HIM OR HER BETTER QUESTIONS, AND/OR SO THAT YOU MAY BETTER UNDERSTAND HIS/HER ANSWERS AND/OR ADVICE. WHERE ANYTHING YOU MAY LEARN HERE, OR ON WEB PAGES LINKED-TO HEREFROM, HAPPENS TO BE CONTRARY TO WHAT YOUR ATTORNEY SUBSEQUENTLY ADVISES, QUESTION HIM/HER ABOUT IT, BUT ALWAYS END-UP FOLLOWING YOUR ATTORNEY'S ADVICE AND NOT ANYTHING HEREIN, OR ON WEB PAGES LINKED-TO HEREFROM, WHICH YOU MAY HAVE MISCONSTRUED AS ADVICE. Almost certainly, no. An LLC is inappropriate for the business category which underlies typical non-profit entities organized under section 501(c)(3) of the US tax code... even, and, to some degree, especially churches. It is being a corporation which provides the "shield" of which you write -- at least in the case of not-for-profit (or non-profit) entities. Though you may not know it yet, where you are headed, believe me, is the formation of a non-profit corporation, not an LLC. Further, you used the phrase, above, "we're changing the name, charter, etc." This suggests that a non-profit legal entity already exists. If so, and if said entity is going to be either substantially changed, or dissolved altogether in favor of a new legal entity, then know that profoundly changing a non-profit's stated intent may necessitate its dissolution; and dissolving a non-profit must be done properly or somer serious legal problems can arise. Talk to a lawyer. As the time-worn term "corporate veil" suggests, there must be a corporation in order for there to be a "veil." Corporate veils are most often talked about in conjuction with piercing them. "Piercing the corporate veil" means a creditor usurping the legal protections against owner liability provided by said owner's having formed a corporation in the first place. When a piercing is successful, a creditor is able to attach the owners' personal assets to cover corporate debts in excess of corporate assets -- something usually only possible if the owner has stupidly signed personal guarantees, co-mingled personal and corporate funds, done something illegal, etc. An LLC provides its owner(s) with similar protections against liability, but in slightly different ways (none of which will be discussed here); but to call an LLC's protection a "corporate veil" would be technically incorrect in any case... though the concept, generally, is similar. The interchangable terms "non-profit" or "not-for-profit" do not mean that there cannot be what a commercial enterprise would consider "profit" (i.e., income in excess of expenditures). And non-profits can most certainly operate what would otherwise be considered "commercial" enterprises in order to generate said income. The question is: Is the "profit" from said "commercial" (or at least "commercial-like") enterprises taxable? Non-profits are usually tax-exempt because they engage in certain IRS-defined religious, scientific, charitable, literary or educational pursuits, among other reasons. As long as the "profit" earned by a non-profit organization is clearly the result of activity unambiguously associated with said organization's stated purpose which earned it its IRS non-profit status in the first place, then none of its "profits" earned therefrom are taxable. Any other "profits" (in excess of $1,000 for a given tax year) that are not unambiguously associated with its stated non-profit purpose -- even if they are subsequently applied thereto -- are taxable at a corporate rate. The classic law-school example: A non-profit organization dedicated to helping baby seals may engage in virtually all manner of seemingly "commercial" activities -- even selling mugs and T-shirts bearing irresistable baby seal images -- as long as said activities are unambiguously associated with the organization's stated purpose. But if the directors of the baby seal non-profit organization provide a neighboring non-profit organization with some administrative advice and subsequently collect a consulting fee for same, then said consulting fee is taxable at the corporate rate. Allowing too much of a non-profit organization's income to be of the taxable variety, or too many of its resources devoted to the creation thereof, can endanger said organization's "non-profit" status. Where there is doubt, some non-profits spin-off their more obviously "commercial" enterprises into separate corporate entities which are either not "non-profit" at all (rarely done); or which are formed under different sections of the US tax code (like sections 501(c)(4) or 501(c)(6) or 501(c)(7) for example). As others have advised you, herein, talk to a lawyer, of course; but hopefully this information has helped a little. Complex, maybe... but not complicated. You can do alot of it yourself, but only after first seeking adequate counsel. And even then, you have to be careful not to do for (or to represent) your non-profit corporation (in) that which, technically, only an attorney should be doing. One reason some people -- sometimes even attorneys -- don't talk too much about things like this is because it's fairly easy in most states to inadvertently end-up being guilty of the unauthorized practice of law (UPL). Even an attorney can be guilty of UPL if s/he gives what most anyone would consider "legal advice" to someone who does not reside in the state in which said attorney is licensed to practice. Having once worked for Nolo Press -- the world's oldest and largest publisher of self-help law books, software and other products; and which has been unsuccessfully sued or threatened by several states which claimed it was engaging in UPL -- I am fairly familiar with how to avoid crossing the line... hence what (and how) I've posted here. Speaking of Nolo Press, that's probably where you can get your best preliminary information. You should definitely consult and attorney, but I strongly recommend that you first both read relevant articles on the Nolo web site, and purchase relevant book titles therefrom, as preparation for your first meeting with him or her. It may seem like expensive preparation, but once you realize the $250-per-hour hours s/he isn't spending explaining so many things to you, you'll agree that the books will quickly pay for themselves. Here are some relevant Nolo links: Non-profit Basics Five Reasons to Incorporate Your Non-profit How to form a Non-profit Corporation Protecting Your Non-profit Corp's Tax Exempt Status Tax Concerns When Your Non-profit Makes Money Ask Auntie Nolo: Are Non-profit Finances Public Information? Book: How to Form a Non-profit Corporation by Tony Mancuso e-book: Qualifying a Non-Profit for Federal Tax Exemption Non-profit FAQ Hope that helps, BDev. Good luck to you!
Wow!! Thanks guys! I' ve learned a lot from you (there was so much that I didn't know). The church has been in the planning stage for a few months now (I just joined a few weeks ago). They've been dealing with an attorney but he only gave them "general" info because he's out of state. I recommended that they seek assistance from a local attorney and gave the few reasons that I could come up with why they should. I know all about UPL so I told them I could help them with the paperwork but giving advice would be out of the question. I found some other resources that can help, too, but I'll pass along the links that you provided to me. I really appreciate your help!
