Can I Turn My For-Profit Business into a Nonprofit?
If you’re thinking about starting your own nonprofit but you already own a business, you may be wondering if it’s possible to turn your existing business into a nonprofit. The answer is it depends…
In order for an organization to be a nonprofit, particularly if you want it to be a 501c3 tax-exempt nonprofit, the IRS has very specific requirements for this type of organization. It’s not as simple as changing the way you file your paperwork. There are a couple of things you need to look at to figure out if you could make the switch.
1. What is the purpose of your business?
The first thing you need to look at is the purpose of your business. Does it even qualify to be a 501c3 nonprofit? The IRS has a whole definition of what that has to be. It has to have a charitable, educational, or scientific purpose. It has to be operated for the benefit of private interests, and the net earnings cannot benefit any private shareholder or individual.
To be approved as a 501c3 nonprofit, you must explain how your nonprofit serves the public good. You must establish that your organization has been created with a specific approved purpose. For example, an approved purpose might include serving the poor, defending human rights, or advancing science or education. If you can establish that your business serves the public good and that your nonprofit will continue on this mission, you are well on your way to becoming a 501c3 nonprofit.
2. What are your current assets?
One of the major differences between a nonprofit and a for-profit business is that the money or the assets owned by the for-profit business are owned by the owner. If you have a building, equipment, employees, money in the bank accounts, etc., you will have to turn all of that over to the nonprofit. If you were able to turn all of those assets over, you would be losing control of the assets and the value of all of those items and they would become the property of the nonprofit.
If you ever decided to close down the nonprofit it’s not as simple as those assets being given back to you. Once you have a 501c3 nonprofit, if that entity is ever shut down, then everything that’s owned by it would need to be donated to another 501c3 nonprofit. This is one of the ways our government prevents fraud and theft in nonprofit organizations, but it will make it harder for you to turn your for-profit business into a nonprofit.
There are a lot of things you need to consider before transitioning your business into a nonprofit. It can be done but you need to make sure the move makes the most sense for you. Sometimes the best option is to set up a brand new nonprofit. If you have any questions or need help getting your nonprofit started, call Chisholm Law Firm today. We start and grow nonprofits, so whatever you decide, we are here to help.