Q: I want my LLC to be a nonprofit—how do I start over?
Thank you to one of our customers for the great question! Nonprofit organizations have stricter requirements than for-profit companies, which means standard businesses cannot simply convert to a nonprofit corporation. Instead, forming a nonprofit business usually means starting a new business from scratch, then transferring assets from your LLC over to your new nonprofit corporation. Here’s what you need to know:
How do I turn my LLC into a nonprofit corporation?
While you usually can’t turn your current LLC into a nonprofit, you can open a new nonprofit corporation alongside of or instead of your LLC. To start a nonprofit corporation in any state, you’ll need to file formation papers with the office of the Secretary of State, or the equivalent business authority in your state. As with most filings, you’ll need to provide:
- LLC name
- Registered agent’s name and address
- Formation papers (i.e. Nonprofit Articles of Incorporation)
- State filing fee
While each state’s filing requirements will differ, if you intend to seek a federal tax-exempt status, your articles of incorporation will probably also have to include special language and provisions required by the IRS.
For a deep dive into nonprofit formation, see Northwest’s comprehensive Nonprofit Guide.
What do I do after I form a nonprofit corporation?
After forming your nonprofit corporation, you’ll have to maintain your business by:
- Creating nonprofit bylaws
- Obtaining an EIN
- Applying for tax-exempt status
- Getting business licenses and/or permits
- Registering as a charity (if applicable)
- Filing nonprofit state compliance reports
When it comes to tax exemptions, your state may offer specific exemptions for nonprofit organizations, so that’s something you’ll want to look into. At the federal level, you can apply for tax-exempt status through the IRS. First, make sure your company meets IRS Exemption Requirements. Then, apply for 501(c)(3) status using Form 1023.
Will I need a new EIN for my nonprofit corporation?
Yes. If you’re transitioning from an LLC to a nonprofit corporation, your default tax status will change from “partnership” to “corporation.” You will not only need to Apply for a New EIN, you will have to file Form 8832 to change your tax status with the IRS.
Can I form a nonprofit LLC?
Maybe—but it’s complicated. For one thing, not all states recognize nonprofit LLCs. And for the ones that do, having a nonprofit designation doesn’t immediately qualify a company for federal tax-exempt status. In other words, it’s very rare for a tax-exempt nonprofit to be an LLC.
If forming a nonprofit LLC is something you’re interested in, you can read more on our page: Can an LLC Qualify as a Tax-Exempt Nonprofit?
Can I convert an LLC to a nonprofit corporation?
Probably not. Some states offer a process known as statutory conversion, which effectively converts a company from one business entity (like an LLC) to another (like a corporation). However, statutory conversion usually doesn’t work when it comes to for-profit companies hoping to convert to nonprofit corporations.