Would you like to convert an LLC into a nonprofit corporation? Let’s break down the ways to accomplish your goal. The answer isn’t the same in every state, but in our experience, there’s a straightforward way to go about getting tax exempt status. Whether you’re starting a new charitable program or you’re looking to accept grant funding, starting a nonprofit could be the move for your organization.
How do you convert an LLC into a nonprofit?Most states don’t allow you to convert an LLC into a nonprofit directly, but there is still a way to accomplish your end goal. If you accidentally created an LLC instead of a nonprofit corporation, or if your objectives have changed and you’re ready to provide charitable programing, you can still get a nonprofit started. In the vast majority of cases, the fastest, cheapest way to go about it is to start from scratch. You’ll dissolve the LLC with the proper procedure in your state first. After that, you’ll likely still be able to use the name of the original LLC if that’s important for your organization. Next, you’ll go through the process of starting a new nonprofit organization. At this point, you’ll need to know what your charitable mission will be, including what charitable programs you’ll provide and who you’ll serve (also called a charitable class). It’s also a good idea to start recruiting board members, as nonprofit organizations are required to have at least 3 board members in most states. Once you’ve prepared the information you need, it’s time to file Articles of Incorporation (or your state’s equivalent form) with your state of choice. If your organization has people in multiple states involved, keep in mind, you’ll need to pick one state to initially incorporate. This doesn’t mean your organization is restricted to only working within that one state. In fact, many nonprofit organizations in the US work internationally as well! After incorporation, there are a few corporate documents your organization will need to ensure you’re compliant and ready to file for tax exempt status. We’ll cover those below. Your corporate documents will govern things like how your board operates and how the organization handles any conflicts of interest. You’ll also need an EIN, which will allow you to open a bank account in the organization’s name, and will later be tied to your tax exempt status with the IRS. The last step is to file for tax exempt status. For most organizations, you’ll file as a public charity (also called 501c3 organizations), but there’s also the option to organize as a private foundation. Or, if you’re starting an organization like a social club or a business league, you might want to pursue a different type of tax exempt status other than the 501c3 designation. Regardless of the type of organization, you’ll file the proper form for tax exempt status with the IRS, which is dependent on the purpose and size of your organization. These forms range from the 1023-EZ, a mid-size form that the IRS typically processes in 1-3 months, to the full form 1023 or 1024, which are more extensive forms that take longer to process. Keep in mind, the IRS does charge fees to file these forms, so factor that into your planning when budgeting.
What documents will my new nonprofit need?Typically, starting a nonprofit involves:
- Articles of Incorporation (or your state’s equivalent)
- An EIN
- A Conflict of Interest Policy
- Organizational Actions
- The IRS tax exemption form (1023-EZ, 1023, or 1024)