Can a nonprofit homeschool co-op be an LLC?

stickman_question_mark_Green

Dear Carol,

Greetings!  I first would like to thank you for your book (Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out); the advice has been most helpful in the starting of our non-profit homeschooling co-op.

The husband of one of our students is an accountant, and suggested that we form a non-profit LLC until we have raised the funds to file for 501C3 status.   However, your book suggests incorporation.  Can you offer any recommendation on which would be better for us with the eventual goal of tax exempt status? I have opted to hold off on LLC until we see if that would be a mistake further down the road.

Another concern is that we wish to avoid any business model that will adversely affect the board members’ personal tax status, as we are all single income families and do not wish to incur any extra tax liability personally due to being a leader for the co-op.

I thank you in advance for your consideration and sage advice.

Sincerely,
Angela L in PA

 

Angela,

Only recently has the IRS granted 501c3 tax exempt status to LLCs. LLCs are a relatively new business structure and the IRS is slow to accept changes. In a document titled “Limited Liability Companies as Exempt Organizations-Update” (2001 Exempt Organization CPE Text. Available at http://www.irs.gov/pub/irs-tege/eotopicb01.pdf ) the IRS outlined 12 conditions that an LLC must satisfy to qualify for exemption under Internal Revenue Code 501c3.

These conditions are legally complex and I would strongly recommend that you seek experienced legal counsel before organizing a nonprofit LLC.

Here’s a great article titled “Nonprofit LLCs: Time for a New Experiment” (http://www.mayer-riser.com/Articles/nonprofit/npllc.htm) written by a nonprofit attorney.

The reason that most for-profit businesses obtain LLC structure is for limited liability. I organized my own sole proprietorship accounting practice as an LLC because I wanted limited liability and protection of my personal assets.

For a nonprofit organization such as your homeschool co-op, nonprofit corporation status in your state brings similar protections of limited liability. So if your main reason for seeking LLC structure is for limited liability, nonprofit incorporation in your state is the easier option.

Carol Topp, CPA

 

The information contained on this site is designed to provide accurate information in regard to the subject matter covered. However, this site is  not a substitute for legal guidance. This information is provided with the understanding that the author is not engaged in rendering legal advice. If such advice is required, the services of a competent legal professional should be secured.

Should your homeschool group be an LLC?

TaxQuestions
Limited Liability Company (or LLC) is a relatively new type of business structure. Several homeschool leaders have been asking if its something their homeschool group should consider.

In particular, many homeschool groups wonder if they should file for LLC status as part of becoming a 501(c)(3) tax exempt organization.

Caution:  I am not an attorney, nor am I offering legal advice.  I will relay what I have leaned about LLC’s filing for 501c3 tax exemption from the IRS, but I am not offering a legal opinion. I recommend that you seek legal counsel if you pursue either option.

Only recently has the IRS granted 501c3 tax exempt status to LLCs. LLCs are a relatively new business structure (only available in all 50 states in the mid 1980’s) and the IRS is slow to accept changes. In a document titled “Limited Liability Companies as Exempt Organizations-Update” (2001 Exempt Organization CPE Text. Available at http://www.irs.gov/pub/irs-tege/eotopicb01.pdf ) the IRS outlined 12 conditions that an LLC must satisfy to qualify for exemption under IRC (Internal Revenue Code) 501c3.

These conditions are legally complex and I would strongly recommend that you seek experienced legal counsel before organizing a nonprofit LLC.

I read an article titled “Nonprofit LLCs: Time for a New Experiment” (http://www.mayer-riser.com/Articles/nonprofit/npllc.htm) and the author, a nonprofit attorney, advises:

Until state legislatures address the unresolved issues, the actual use of the LLC form by nonprofit organizations should be undertaken only after careful review of current law in the applicable jurisdictions, and only with the assistance of qualified counsel with experience in drafting complex and detailed operating agreements and experience in the law of tax-exempt organizations.

Unfortunately, at the time of the article in 2002, only 11 organizations had obtained 501c3 status as LLCs, so experienced assistance may be difficult to find.

The reason that most businesses use the LLC structure is for limited liability. I organized my own sole proprietorship accounting practice as an LLC  because I wanted limited liability and protection of my personal assets. For a nonprofit organization, such as most homeschool groups, nonprofit corporation status in your state brings similar protections of limited liability. If your main reason for seeking LLC structure is for limited liability, nonprofit incorporation in your state is the easier option.

Carol Topp, CPA

I am not an attorney, nor am I offering legal advice. I recommend that you seek legal counsel if you have additional questions or pursue Limited Liability Company status.