Can a nonprofit homeschool co-op be an LLC?

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 https://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” (https://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

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