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Who Really Owns a Nonprofit?

The concept of who owns a nonprofit organization can be hard for some to grasp, especially given that the answer is, “No one!”  We encounter this confusion with new clients on a fairly regular basis.  And, given people’s understanding of how basic business operates, it is understandable.  In order to fully appreciate the concept of “non-ownership”, it is helpful to first talk about the various types of business entities.  Then, we’ll look at organizational purpose.  By the end of the article, it should make a lot more sense.

The Way It Works In a For-Profit Business Structure

There are several different types of business entities.  For-profit companies make up most of them.  Here are a few that all have an owner or owners:

Sole Proprietorship: One person who conducts business for profit.  Though a sole proprietorship may have to secure things like a business license, it is a fairly informal structure.  Legally, there is no distinction between the person and business.  The sole owner assumes complete responsibility for all liabilities and debts of the business, and reports income and expenses on their personal tax return.

General Partnership: Two or more individuals as co-owners of a for-profit business.  This is more formal than the sole proprietorship, but even with this structure, there is no legal distinction between the individual partners and the business itself.  A partnership files a separate tax return, but profits are taxed at the partner level, not the business level.

(For-profit) Corporation : Now we’re getting much more formal.  A corporation is a legal person in the eyes of the law, with ownership vested in the shareholders.  When a corporation is formed, an initial number of shares of stock must be declared.  These shares of stock are the mechanism for ownership.  How many shares to declare is up to those forming the corporation.  Usually, more shareholders means a higher number of shares declared. Those shares are divvied up between the owners, usually corresponding to the percentage of initial capital invested by that owner. The corporation itself assumes all liabilities and debts of the Corporation, not the shareholders, providing a significant level of asset protection for the individual owners.

Limited Liability Company (LLC): An LLC is a formal association which combines the advantage of a corporation’s limited liability and the flexibility and single taxation of a general partnership.  An LLC has members rather than shareholders, but the principle is similar.  The percentage ownership any one individual has usually corresponds to their relative investment percentage made into the business.

With the exception of the LLC, none of the business structures listed above can be used for nonprofit organizations.  Even the use of an LLC is extremely rare, because all nonprofit LLC members must be other, existing 501(c)(3) organizations, not individuals or other entity types.

The Reality of a Non-Profit Business Structure

The most popular business entity for nonprofits is the nonprofit corporationmaking up well over 90% of all tax-exempt organizations.  This type of corporation is very different from the above-mentioned for-profit corporation.  A nonprofit corporation has no owners (shareholders) whatsoever.  Nonprofit corporations do not declare shares of stock when established.  In fact, some states refer to nonprofit corporations as non-stock corporations.

A nonprofit corporation is formed to carry out a non-commercial purpose, whether that be religious, educational, charitable, scientific or other qualifying purpose.  It is prohibited from acting in a manner that results in private inurement (profit) to individuals.

It is also possible, though not advisable, to operate a nonprofit as an unincorporated association.  A trust structure can also be used.  Lastly, an LLC can be used in specific situations (see above).

No matter which entity type is chosen, none have a mechanism for ownership.  Governance responsibility is vested in the board of directors or trustees.  These individuals are accountable to state and federal authorities to ensure the organization operates in a legally compliant manner and for the purposes outlined at formation.

Also, a nonprofit cannot be sold.  Again, without an ownership mechanism, it simply isn’t possible.  If a charitable nonprofit winds down operations, the board of directors must distribute all of the nonprofit’s assets to another 501(c)(3) after all debts have been settled.  Some other non-charitable nonprofit types, like 501(c)(7) social clubs, distribute residual assets proportionately to the existing membership.

Final Thoughts

It is difficult for some people to wrap their head around this idea of non-ownership.  That’s completely understandable.  We’re programmed to think of business in terms of entrepreneurs, owners, and shareholders.  A nonprofit organization is not “owned” by the people who start it, nor their successors in leadership.  These individuals operate in a position of trust and accountability for the public at large, who, via government, allow nonprofits to operate exempt from the taxes that for-profit businesses must pay.

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Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 93 Comments

  1. Would you please give me your take on a non-profit business proposition I am trying to put together.

    My business I would like to start is a total non profit fishing charter where proceeds would go to taking disabled people fishing that would otherwise be unable to ever enjoy this. I plan on two boats to start. One specially developed for accommodate wheelchair bound, and other types of disabled people, one normal charter to generate funds to operate the other. Priority would be given to disabled veterans and disabled civilians who have never been fishing (developed an injury or illness after already previously enjoyed fishing).

    I know this venture would be extremely expensive, from the modified dock are to the modified fishing vessel, specialty prosthetics, specialty safety devices, licenses, etc, etc . I believe that the idea of this company, even though it would be more of a donation than an investment, if properly advertised and administered could raise alot of money.

    Also the employees would be made primarily of physical disability persons, from Captain and deck hand, to office administration. I want the recipient of the trip to never feel like we are taking pity, rather, give them sense that they can do anything they put their mind to.

    I would love your thoughts on this.

    1. Sounds like a lot of joy to be had by all. If done well, I think this would resonate with people and might just be a big success. The part about the 2nd boat for normal charters is the difficult part. While the revenue would be used to help underwrite the costs of entire operation that benefits the disabled, that’s not enough to keep it from being a commercial business equivalent. That means it would be taxable income that would have to be tracked separately from the disabled charters. That’s really a gang-plank you don’t want to walk. It’s not that two streams of revenue…one non-taxable and the other taxable…is illegal. It’s not. It’s just called unrelated business income and can be a real headache to track, report, and pay taxes on. Plus, it cannot generate more than about 20% of your nonprofit’s total revenue, meaning you would need to cover the other 80% at a minimum through donations. I recommend searching our site for our articles on types of income, especially unrelated business income. We have videos about those topics on our YouTube channel, as well:

  2. Hello Greg– I am a lawyer, and can do the incorporation myself. Is there any church corporation that you can point me to for a sample set of forms? I want the church corporation to have 501c3 tax exempt status but don’t want to apply for documented exemption from IRS. Thanks for your help.

    1. You can probably use your state’s articles template for nonprofits and accomplish what you’re after. Churches are recognized as already 501(c)(3) tax-exempt, so the choice to apply for official recognition is, while recommended, completely optional.

  3. Hi Greg, 10 years ago, I came back to the USA to start a nonprofit. I spent about a month taking all the courses you offered at the Foundation Center. Since then, I have started 10 different nonprofits including several 501c3’s as well as a 501c4, 501c6, 501c7, 501c12, 501c25, and a 527 and one 501c3-PF. None of them were very successful, most never applied for 501c determination within the first 2 years, and all but 1 no longer exist. But I learned a lot.

    For the last 5 years, I’ve been a business broker. I sell businesses like a Realtor sells houses.

    For the benefit of both industries, I would like to contest you interpretation of 2 things. Explicitly, you stated in this article that it’s impossible to sell a nonprofit. Implicitly, you stated that running a nonprofit cannot benefit an individual.

    Regarding the latter, I think it’s really important that you as the CEO and as an organization place a greater emphasis on the fact that 99% of nonprofits not only fail to operate but also fall short of achieving the purpose of their mission because nonprofits are not commonly operated like any other business when they SHOULD be run like a business. I think it’s irresponsible on the Foundation to place so much emphasis on a binary interpretation of operating a nonprofit. My opinion is that this binary interpretation of what “benefiting an individual” means is perpetuating the cycle of fruitless endeavors of most nonprofits. There are also SO MANY rules that are not that different than for profits other than the language that is used to describe the same things merely because it’s important to differentiate those things for nonprofits. For example, “surplus” rather than “profit”.

    In my experience, the vast majority think that operating nonprofits is a zero sum game where 100% of the funds raised need to be spent on program expenses. However, that places way to much responsibility on the founders to sacrifice a living wage and other life activities and to do so in perpetuity, which is impossible. In fact, the highest rating on Charity Navigator is partly achieved through the Financial Health ratio of Total Functional Expenses with only 7.5% coming from Administrative Expenses and more than 72.5% going up Program Expenses. I realize you’re not directly affiliated with Charity Navigator, but how many nonprofits know that having a low rating from Charity Navigator does not mean you’ll get your tax exempt status revoked? If more nonprofits knew that they could technically spend 90% on Administrative Expenses, there might be more founders willing and ABLE to sustain their endeavors for more than the 7 years Charity Navigator requires before they even consider reviewing a nonprofit.

    A greater emphasis should be placed on not only that someone can make a living wage from a nonprofit but that they should if that is their passion. By doing so, we create the ability for passionate founders to give up their “normal” jobs to free up their capacity to do more with their charitable purpose. Isn’t the goal of the Foundation Group to facilitate that? I know the answer is yes. I’m just saying that the Foundation is not doing enough to encourage that and is instead doing too much to create a wall between for profit and nonprofit with binary interpretations.

    Regarding selling nonprofits, I haven’t sold one, but I disagree with that interpretation as well. I think that statement is binary as well and that is damaging to the nonprofit world in a similar way as I have already stated.

    To illustrate this, I have 2 points to make. First, the ability to sell businesses varies significantly by market area. Second, selling businesses is not binary whatsoever.

    A market area affects the ability for it to be possible to sell a business significantly. In markets like Florida, New York, and Colorado, there are more than 700 business brokers per state and this reflects that ability for businesses to transact frequently, in short periods of time, and for close to or more than the valuation. In markets like Louisiana, there are only 20-100 business brokers per state and this reflects the inability for businesses to transact frequently, in less than 8-18 months, and for 20-60% less than the valuation (lack of marketibility Treasury Regulation § 20.2031-1(b)). Part of the reason for this is that real estate laws favor landlords who also have strict leases preventing the ability for businesses to transact without permission or at all. But my argument to the real estate commission is that there would be far lower vacancy rates and greater benefit to the community and economy if a business was allowed to be sold more easily. Similarly, there would be a greater benefit to the nonprofit community if nonprofits were told that they could be sold more easily.

    I say more easily because your interpretation of the ability to sell a nonprofit is binary. However, my interpretation of the ability for a nonprofit to sell is not that different than businesses to be sold.

    Selling a business is not binary. There are multiple definitions of selling a business, starting with stock sale versus asset sale. A stock sale is when you sell the entity that owns the assets. An asset sale is when another entity buys the assets of an entity. But the definition of “selling a business” doesn’t stop there. On Form 8594, there’s a list of different classes of assets, and selling a business doesn’t have to have $1 or more of every class in order to qualify for the definition of selling a business. It can be a very different composition of assets from sale to sale.

    There are also different ways of accounting for value, and I think this is where nonprofits can be sold, particularly in the form of long term consulting agreements or 501c2 or 501c25’s. But the methods of doing this don’t have to align with a binary interpretation of what’s compliant or legal. As long as people are compliant and legal about the way they transfer value, they shouldn’t be chastised for conceiving of those methods because it doesn’t meet your binary interpretation of the inability for a nonprofit to be sold. Like many low rated nonprofits on Charity Navigator who still maintain their tax exempt status, there are a lot of “loop holes” or interpretations of compliance with 501c rules regarding benefiting an individual to allow these organizations to continue to exist. But these should be featured by the Foundation Group so that more nonprofits can survive into perpetuity without having to reach the unrealistic expectations placed upon them with a binary interpretations of compliance and the law.

    1. You might be surprised to hear that I agree with much of what you are saying, Russell. However, I think in some cases you have us confused with Foundation Center, a large nonprofit that provides educational services and assists charities in finding grant funding.

      Regardless, lots of “binary” talk being thrown around, but the gist of what you’re saying is that nonprofits SHOULD operate more like businesses if they wish to thrive. No argument from me on that. In fact, we have often said essentially that in our articles and videos. We have long argued against the arbitrary ratios promoted by Charity Navigator and others. For most smaller nonprofits, it’s virtually meaningless. The industry has come to call that stuff “The Overhead Myth”, and we’ve written about the topic. A great book on the subject is called “Uncharitable” by Dan Pallotta. And yes, people should be paid fairly for work they devote to charity, same as they would in the commercial space.

      As to our “binary” view of selling a nonprofit, I think you’re missing a key point. Even if a nonprofit board “sold” their nonprofit to someone else, either by asset sale or some similar mechanism, there is no owner to reap the sales proceeds. The board doing the selling can’t take it home. That’s why most nonprofits that hit end-of-life wind down and distribute their remaining assets to other charities, as required by law. That’s not binary; that’s required.

  4. Hi Greg! I would like to start a non-profit that would focus on nature conservation (e.g. cleaning up the lakes, river, lands, neighborhoods, etc.). I was thinking it would be a donations only model for my time spent for the volunteer work and anyone else who is helping. Are my intentions accurate and sound in setting up a 501c3 to do this? Much thanks!

    1. You might be surprised to learn that most conservation-oriented nonprofits are 501(c)(4), not 501(c)(3). Conservation organizations are generally considered public benefit, not charitable benefit…still tax-exempt, but not a charity. The primary exception to this are nonprofits dedicated exclusively to animal welfare, such as habitat preservation for endangered animals. See our article and video on What Is a 501(c)(4) for better understanding of this distinction.

  5. My non profit was setup as an LLC. I am the founder. This article confused me a bit in regards to this .it says “all nonprofit LLC members must be other, existing 501(c)(3) organizations, not individuals or other entity types.”
    So my board members need to have a 501c3? I appreciate further clarification.
    I didn’t set it up but the professional that did said they do this all the time and the IRS seemed fine with it as they approved it.
    I am small and have made many mistakes so I’m just trying to figure all this out.

    1. If you are set up as an LLC, and your members are individuals, then you were set up incorrectly and the “professional” who did it has no clue what they’re doing. It’s not that your board members need their own 501(c)(3). An LLC is only appropriate for a 501(c)(3) when each LLC member is another 501(c)(3) organization, not a person. That means the only use case for a 501(c)(3) LLC is when it is a joint venture of two or more existing 501(c)(3)s. These are exceptionally rare, and it doesn’t sound like your situation. We’ve seen cases where the IRS approved an applicant without paying attention to the LLC structure, either because they were more focused on what your program and purpose was, or, it was rubber-stamped without an actual person at the IRS reviewing it. Sorry to say that your setup sounds totally incorrect.

  6. when assuming a senior pastor role of an existing church who’s pastor is retiring, is it possible or necessary to transfer the 501c3 in order to assume responsibility for the existing loan on the property?

    1. I can’t imagine a scenario where you would do that. If a new pastor is coming into an existing church, that’s an employment issue, not a 501c3 issue. The church’s 501c3 status shouldn’t have any bearing on who’s employed by the organization. One should not affect the other.

  7. Looking to start a nonprofit that provides vacations to special needs families. The long term vision is to employ caregivers that can come along side the families. We personally own two properties which we can use. Probably will place in separate LLCs How should things be structured so that costs of the property are off set by “rent” We are not looking to make money off of the “rent” but to cover the mortgage, HOA fees, taxes and other fees associated with owning. If your answer is going to be it’s a legal matter can ya point us to a knowledge counsel

    1. Unfortunately, there are too many variables with this to give you a straight answer. You probably need to invest in a consulting block with one of our Exemption Specialists to unpack this idea. What you’re talking about is borderline commercial, so it’s not a given that you can do this as a charity. Almost certainly, you wouldn’t use LLCs in a nonprofit structure…more likely a combination of a 501c3 and one or more 501c2s. Call our office at 615-361-9445 and ask to speak with one of our Sales Team members. They won’t hard-sell you, I promise. But you’re going to need expert help on something like this, for sure.

  8. Hi there,
    I have a general question. For at least 15 years I have wanted to start a non-profit for animal rescues. Over they past year that has morphed into wanting to help just about anyone/charity that might need it. I have what I feel is a new concept for a thrift/resale store and I have been selling online for many years successfully. We have a big homeless problem, animal problem, growing drug problem, etc just like a lot of places. I have never come across a non-profit that supports multiple causes. There may be but I missed it. Usually its a Animal , Humanity, Addition, Vet, etc cause.

    In my case would it be best to start the Store and then form a Foundation That the store can fund, that can then disperse to multiple charities? I have a friend who has a non profit and he said a foundation most likely would be the way to do .


    1. I doubt you would want to go the foundation route. It sounds like a public charity 501c3 makes more sense. Charities with a primary mission to fund other charities often support multiple causes. And while you see that with foundations, including the thrift store idea points toward a charity being a better choice. Just make sure substantially all that the thrift store is selling are donated goods, otherwise your activity would be considered taxable.

  9. Hi Greg:

    I want to create a non profit organization, but based on what i read after putting all the effort, time and sweat i won’t have any ownership right whatsoever. Which mean the board can fire me at any time. Is there’s a way i can protect myself as a founder?

    1. It’s true that you cannot own the nonprofit, but most states will allow you to create a “sole member” structure where the founder is the sole member and is able to select the board members. This structure must still pass the conflict-of-interest and private benefit test, but it is a structure that provides a good measure of protection to those social entrepreneurs who are risking much for no ownership.

      We can help you put together such a structure. I’ll email you privately about this, Luce.

        1. I believe so. Texas requires nonprofits to have at least 3 board members, but does not specify a limit for governing members. So, even if you have a sole member org, you would still need a 3 person (minimum) board of directors.

      1. Greg,
        When referring to the “sole member” structure where the founder is the sole member and is able to select board members, is this legal in Pennsylvania? Also, if a current non profit org. dissolves and would like to donate to another non profit are they able to specify whom they would like to donate it to or do the courts decide that?

        1. I expect it is a legal structure in PA, but I have not verified prior to answering this. One of the pioneering attorney architects of this structure is based out of PA (Don Kramer). He’s considered one of the best nonprofit governance experts around. As to the second question, yes, you can pick the recipient charity when distributing assets at dissolution.

    2. Luce St. Louis,
      Not so! When you start a 501(c)(3) organization you as the owner will dictate which right you’ll have. You can decide who can do what in your organization and you can also choose to have a permanent status which nobody can take away from you. It’s better to have a lawyer do it for you as the law can be very tricky to do it on your own.

      1. Respectfully, Mary Lou, I don’t know who’s advising you, but most of what you said is not accurate. You cannot “own” a nonprofit. There are ways to structure single-member organizations that provide a higher level of protection and control, but nothing is absolute with a nonprofit. Even as a single-member, you cannot “dictate” anything. You still have to have an independent board of directors who are functionally responsible and accountable. If you want absolute control, you need to stick with a for-profit business model. Any lawyer or self-appointed expert who says you can be a dictator of your own nonprofit is steering you toward trouble.

  10. Hi Greg! Thank you in advance for you help. We have a pool in our neighborhood that is not part of an HOA. It was built later and it was established as a nonprofit corporation and they do file a 501(c). I join our pool every year and we recently asked for a copy of the bylaws and were refused. We were told that only full equity members are allowed a copy (we have never been given the ability to join as “full equity” members.). We were sent the below response about membership types:

    “as I have explained there are three types of memberships – equity (these folks who own the property), annual members and non-voting members (not non-voting equity members). Annual and non-voting members do not have any equity in the pool (that is, they do not own shares of the pool). There are 9, not 8 board members, which I listed in a prior email. Board members are selected by a vote of the equity members. Only equity members may serve as board members.”

    Would this be possible for a nonprofit corporation? As from my research no one can “own” the nonprofit.

    Thanks again for any info you can provide.

    1. This sounds messy. You are correct that no one can own the nonprofit. There are rare situations where a nonprofit corporation can issue shares of stock, but it does not create an equity stake. And, in most states, this is disallowed anyway. I also question whether this group actually has 501c status. It would not qualify as a 501c3 based on its purpose. At best, maybe a 501c4 public benefit corporation. My guess is they filed Articles of Incorporation with the state and nothing else. The IRS certainly would not have green-lighted this method of operation if it were honestly disclosed. Any member of a legit 501c has a right to see the bylaws. The org leadership cannot refuse it legally. First, look up the corporation on the state’s corporations website. Then, go to and click on the charities button at the top of the page. You can search there for nonprofits with IRS status. My guess is they are not IRS approved.

      If you continue to get the runaround, contact the state AG’s office. Good luck!

  11. Hello. Your article is very informative but, I would still like some clarification, if possible. I am a member of an organization based in California and the Office of the Attorney General’s website lists us as a ‘Public Benefit Charity’. From my research, it is my understanding that description is interchangeable with the term ‘Non-profit Corporation’. Our Articles of Incorporation state the organization was “organized under the ‘Non-profit Public Benefit Corporation’ for charitable purposes”. The organization has 501(c)(3) status. One of the original members (founders) who signed the Articles of Incorporation states that he has full control and ownership of the organization and pretty much rules with an iron fist. His name and signature are on everything and it’s my understanding that all of our financial accounts (checking account & credit cards) are based on his Social Security number and creditworthiness, not the organizations. His title is Executive Founding Director. We operate with an Executive Board made up of three members, himself and two that he appoints. The other two Executive Directors have very little access or say on anything. For example, one of the Executive Directors also carries the title of CFO but does not have access to any financial accounts. Next down is “the members of the Board of Directors shall be those persons elected by the Founders of the Corporation and shall be known as the Elected Board of Directors”. The Executive Board discusses who they feel would make good Directors and the Founding Director makes the final decision on who is appointed. The organization has a set of Bylaws that only cover certain members and aspects of the organization and there are ‘Rules & Regulations’ that cover pretty much everything else. The Rules and Regulations have statements such as: “It is unlawful for Elected (Board) Directors to attempt to undermine or try to cause the removal of the Founding/Executive Directors. Any such attempts shall be immediate grounds for removal. If there should be a time when there are no Founding Directors, all duties shall pass to the current Executive Directors. There is also a statement which states that when the last Founding Director passes away the two Executive Directors must pick someone to take the Founding Directors place and “shall represent legal ownership of the organization. This designation is not amendable nor subject to repeal.”

    Is any of this legal. I read one article that said a founder of a non-profit cannot hold a director position. In addition to this Founding Director controlling every aspect of the organization he has been on Leave of Absence for at least seven years. He still oversees things and rules like a dictator through his second in command who is overworked and in poor health himself. I feel that over the years members have simply taken his word that he owns the organization and did not question it. New, younger members are more informed and have been questioning it and would like to see him removed although it is well known that any attempt at removing him would bring the wrath of his second in command who is set to inherit the organization upon his death. Any advice?

    1. Your instinct is correct…this is not remotely legal. It is OK for a founder to also be a director and/or officer. There’s no legal prohibition on that. But, no one owns anything and you certainly cannot be a dictator legally. The entire voting board has fiduciary accountability, so they better exercise their authority or quit. It’s not worth the risk being a puppet to this kind of nonsense. Get out.

  12. I am planing to establish a non- profit scientific research organization that is initially being sponsor by only me that will be operated by me. Iam thinking about the leadership structure that would not cause me problem in the future. could you please suggest any possible way for me?

    1. Sorry for the response delay. It sounds like you may be a good candidate for a sole member structure that provides more entrepreneurial protection to the founder of a nonprofit. It doesn’t give you total control, but it is a great structure for those who have elevated risk exposure in starting a nonprofit. I suggest calling our office and speaking with a member of our Sales team. They won’t hard sell you, but they can help you understand how to get where you’re wanting to go. Sole member orgs are tricky to structure correctly, so you will need experienced help with this.

  13. Thank you Greg for all this information! I’m starting a nonprofit and I’ll have to personally donate funds to cover rent for the facility. Would this type of donation be considered deductible for my personal taxes?

    1. Donations from you are just as tax deductible as they would be from anyone. If you are able to itemize your deductions, your donation should qualify to be tax deductible.

  14. We set up a tax-exempt 527 political organization and want to incorporate purely for liability purposes. Would incorporating as a non-profit corp without pursing 501(c)(3) status be a viable option for limiting our liability?

    1. My opinion is that it probably would be beneficial. Yours is really a legal question, not a compliance one, so I recommend seeking a legal opinion if you are really concerned about personal liability.

    2. Im the founder of a 501(c)3 animal rescue. I drive thousands of miles every year for my charity. Since the non-profit is not considered a business, because it isn’t a money making venture, i would only be able to deduct 14 cents per mile versus 58 cents? Is that correct? A cpa briefly mentioned to me that i could choose to take the deduction or the non-profit can take deduction depending on which is most profitable. ??😣

      1. It’s not really about being a business or not, but rather the nature of the transaction. If you were a paid employee of the nonprofit, then standard mileage rates and potential deductibility apply. But, if you are a nonprofit volunteer, those miles are considered a charitable contribution, subject to the reduced rate. Even as the founder, if you are not paid, your still a volunteer. But, if you ARE paid wages, you may be able to consider them business miles.

  15. Hello, similar to the church situation above, our Ohio non-profit has always been very small, run by founders a husband and wife. Have by-laws but due to actual amount of members no meetings everything was verbal between this couple. Both are now deceased. Last one died recently but prior had turned over leadership (verbally) to myself along with access to all websites, and other items someone of authority would have. She was active until her death in that we could consult with her, so was functioning still in that capacity along with me doing the day-to-day. We assigned someone to do our accounting also. Remaining family (who have never been part of this group) states unless we produce something in writing saying I was given authority they will shut us down. Cannot the remaining active members look to by laws and (formally, now) vote on leadership? Our by-laws state minimum of 3 leaders. Help!

    1. The “family” has no say-so in this at all. The remaining members should fully seat an active board and continue operations if that’s the choice that is made. If it’s a nonprofit corporation, especially with 501c3 status, it can’t be owned and family has to stand down. Sounds potentially ugly…good luck with it.

  16. Currently I am working with a for-profit healthcare entity that has a non-profit Foundation. The by-laws submitted state that the The Corporation shall have and continuously maintain in this State a registered office and a registered agent whose office is identical with such registered office, and may have other offices within or without the State of Illinois as the Board of Directors may from time to time determine. The initial registered agent of the Corporation shall be the CEO of the healthcare facility and the initial registered office of the Corporation shall be the address of the healthcare organization
    The Corporation shall have one member. The member shall be the healthcare facility,or its successor. The member shall elect the Directors at the annual meeting of the member to be held in December of each year on such date and at such time and place as determined by the Board of Directors.

    This was given a public charity status as a 501c3, but as you can see from the by-laws the for-profit controls the not-for profit. The for-profit votes on the board members based on the way the by-laws read above. Does this sound right to you? it seems like a conflict of interest but legally we are being told it is fine. Just concerned.

    1. Obviously, I don’t know the entire legal setup, but it probably works. This is known as a single member 501(c)(3), and most states allow it. So does the IRS. Since the IRS expects governing accountability to rest with the officers and directors, they don’t put much focus on the membership. As long as the “member” allows the board to do its job per the bylaws, these setups are usually OK.

  17. Greg, here’s a question for you if you’re still following this string: Here in our town is a small, now derelict church in which my wife and I were married many years ago. The church is owned by the 501 and all of the officers of record, including the minister who performed our service are, sadly, dead.

    The county assessor doesn’t care because, although the entity has been suspended for six years by the state of Arizona, there are no taxes due since it was exempt under our statutes. So the property just sits there further eroding. Given the nebulous nature of this situation, and the lack of sentient owners, who has legal authority to convey the property?


    1. I understand you to be saying that there is no longer a church congregation, nor an active legal structure, nor a governing board. The real question is who holds title to the property. I’m guessing it’s the suspended entity. If there are still living members, that membership could appoint new officers and the legal entity reinstated with the state. The new board would have to decide what to do with the property, keeping in mind that 501(c)(3) assets are permanently dedicated to a charitable purpose. It couldn’t be sold and the money pocketed by anyone. If sold, the proceeds would have to used charitably.

      This is a situation where the property could very well become a ward of the state AG’s office if there is no membership that could reconstitute the entity. 501(c)(3)s that wind up abandoned with no stakeholders generally relinquish their assets to the jurisdiction of the AG or possibly the local or state court system. You may wish to seek competent legal counsel or call the AG’s office for advice.

  18. My husband has been working for a non-profit for the last 9-10 years and is considering taking the reigns as the president of the organization. The current president is financially tied to it (having used some of her personal money over the years to cover expenses and payroll during leaner business times). She believes there’s a monetary value to the org and has offered that for a “buyout” number. Considering the org is service-based with minimal tangible property, how could we possibly figure out a true value to the org and/or “buy her out” per se?

    1. There really isn’t a “buy out” valuation that’s possible. In a for-profit small business, infusions of capital by an owner increases the value of the company and, additionally, that owner’s equity stake. It is also possible to structure it as a loan to the company that would be paid back to the owner with interest. In a nonprofit, infusions of cash are either a charitable donation or it is a loan. There are no other choices. A nonprofit has no valuation measurement, therefore contributions by an insider cannot create a valuation stake for that individual. Attempting to monetize that is highly illegal and could result in civil or even criminal charges.

      In this situation, one way for this person to be made whole is for her contributions to be considered a loan. The problem there, though, is one of contemporaneous documentation. Any loan by her to the nonprofit must have been approved in advance by the board and documented tightly with regard to amount, payback timing, and any applicable interest. I know from your question that this isn’t what happened. As such, her infusions of cash are almost assuredly restricted to being charitable donations.

      Taxable salary or bonus is really the only other possibility, but you have to very careful even with that. Any compensation to her must be board approved without her board participation (conflict-of-interest), and must be defendable to the IRS as being reasonable for services rendered and CANNOT be tied in any way to prior cash donations by her.

      This is a longer answer than usual, but it’s a tough situation that we see frequently. There is no good fix for this and real risk to her and the board if done incorrectly. This is another great example of why every small nonprofit needs competent counsel before they made irreversible mistakes. What you don’t know CAN hurt you!

  19. We are a 501c3 non-profit amateur theatre group. Can we transfer our non-profit
    to another group of people who want to start a theatre?


    1. I presume from the question that your organization is shutting down, maybe? You can’t simply transfer your 501(c)(3) status to another group. There are many factors, but the primary one is the fact that the status is tied to your corporation, not theirs. You can’t detach it from one and attach it to another. Theoretically, they could “take over” your existing corporation if your group is winding down, but there’s a lot to that legally, AND, it’s something we never recommend. There’s too much liability for all involved. The other group would be far better served to set up their own nonprofit and secure 501(c)(3) status for it.

  20. An existing non-profit 501(c) 3 with some similarities in purpose to a new non-profit we wish to establish is closing its doors because the founder is elderly. A member of their board has proposed that we assume their 501(c) 3 status, continue the work they are doing, add on our own new initiatives, and file to rename it and make it our own.

    Is it permissible to transfer a 501(c) 3 organization authorization in this way? I am not sure whether this is a great opportunity, clearly not allowed, or allowed but unwise. I’ll appreciate your perspective. Thank you

    1. I am really sorry about the response delay, but hopefully this still helps. It’s doable legally, but has risk. Unless you know for certain that there are zero skeletons in their closet, legally, behaviorly, and/or with regard to state and federal compliance, you may wish to start your own org. If you feel confident the older organization is in good shape, new leadership can step in and rebrand, so long as the general purpose remains similar.

  21. This is probably a silly question.. but is a college degree or certification of any sort required to create a non profit organization?

    1. Not at all…most anyone can start a nonprofit. Most states will require someone who is incorporating a nonprofit to be 18 or over. Some states even allow minors to serve on a board. Education or certification is never a consideration legally.

  22. There is a local church that a pastor has taken over and sold all the assets. He is using church funds to rehab his personal residence. The house was owned by the church However he did a quick claim deed and transferred it to himself. Is this legal? Thank you.

    1. Is there no board of directors/trustees/elders? If there is, maybe there is more detail you’re not aware of and they have this board-approved and documented. If things are as you describe, however, it is a massive violation of private benefit and inurement rules and VERY illegal. If you’re correct about this being a one-man takeover, the state AG’s office (or Division of Charities) should be advised of the situation.

      Also, even if this was board-approved, it is still likely an illegal private benefit transaction. It’s hard to imagine how any version of this is OK.

  23. A friend started a non-profit to help those battling cancer. She is also someone who is currently battling. Her family and friends would like to use the funds from the next charity event to help her but because she founded the organization they weren’t sure if they could use the funds for her instead. They want to make her the recipient of the funds. They think it may be an llc not sure. I understand based on your article that there is no true owner but if she is the one that normally runs it for other recipients and she founded it they weren’t sure how to proceed to help her. I believe she is not aware of this and they may want to surprise her but they want to do it the right way without jeopardizing the organization.

    1. This is a potentially sticky issue. If the organization is, in fact, an IRS-approved 501c3 nonprofit, and your friend is a board member or key employee (or both), she can’t readily be a beneficiary of funds raised by that organization. It IS possible, but it would have to be completely at arms-length without her involvement…the rest of the board (not including any persons related to her by blood or marriage) would have to make the decision.

      Another solution could be to set up a “Go Fund Me” type account for people to give to, rather than funneling it through the nonprofit. That way, you avoid the whole conflict of interest problem. Donors wouldn’t get tax deductibility for giving to such a fund, but most people don’t itemize their expenses anyway.

  24. Please, what happens to shares and debts of limited liability company that converts to a non profit organizations

    1. That’s really a trick question, of sorts. Technically, a for-profit LLC cannot convert to a charitable nonprofit. The only way that happens is indirectly. A new nonprofit organization would be formed that would take over substantially all of the activities of the existing LLC. The question of whether or not to transfer the LLC assets into the new charity structure would have to be determined. The debts, in most circumstances, could not be transferred without providing prohibited private benefit to the LLC owners. Finally, once everything that can be transferred has been transferred, the LLC could dissolve.

      All of this presumes the activity of the LLC is already charitable in nature and the original choice to be a for-profit entity is being reconsidered.

  25. I have a non-profit client that purchased a restaurant’s assets to help fund their non-profit purpose, It was previously owned by another non-profit. They now want to sell to another non-profit and get out of the restaurant business. It appears to me that they can sell the assets but cannot sell based on a revenue model. Is that correct? If there is a gain, will they pay taxes on the 990T for that?

    1. Tough question to answer without more background. In general, an equity sale is really difficult, because there is no separate entity. By the nature of the setup, an asset sale is about the only way to go here. Most gains on sale of property can be exempt from capital gains taxes on 990T, but this equipment may not be. Gains on the sale of both debt-financed property and Section 1245 property, which I think this would be, can be subject to capital gains taxes on 990T.

  26. Hi, I am a tenant in common owner with my two sisters. The properties are commercial and residential rentals. One sister tells us, that she just got approved for a non profit ministry for children. She claims she will be putting all of her 1/3 ownership of the properties in a trust. Her name will come off of the deed and the foundations name will go on the deed. Can she do this legally? Where does this leave me and my other sister? We want to sell.

    1. From your description, it sounds like your sister if perfectly within her legal rights to do this. It’s not really a nonprofit-specific question, however. You would have the same dilemma if she still owned her portion personally and didn’t agree with selling the property. I think you probably need to consult an attorney about this if your goals are indeed this misaligned with each other. Good luck with it.

    1. Absolutely. You have to be careful in how the two entities interact with one another. The nonprofit cannot directly steer business to or promote the commercial interest of the LLC. But in general, yes, the same person can be involved in multiple organizations.

  27. Knowing what it takes to be successful can reveal excitement to both profit and non profit, it’s not all about competing its about loving and caring for people who are trying to start a business.

  28. RE: ownership of a non-profit. At least in the State of Missouri, the state owns the assets if those assets are not transferred to another charitable entity. In the 1995s, Wellpoint, a for profit health insurance conglomerate, approached Blue Cross and Blue Shield of Missouri. The “ask” the Board to convert the organization to a stock company and then to “sell” it to Wellpoint. The then Missouri State Attorney General, Jay Nixon, challenged that transaction and filed a law suit. The case was settled out of court for stock in Wellpoint and other considerations, cash, etc. That money founded the Missouri Foundation for Health in 2000. In my memory, the settlement amounted to over $450,000. And Wellpoint is still making money, as far as I know.

  29. Good job you are doing here Greg. Let’s say a not for profit entity was started with three individuals with various amounts of contributions made in terms of the money to start with. Since shareholding is not encouraged at this kind of entity, how will their contributions and percentages of contribution be captured ? How will prosperity know that such initial funds with were raised at the inception and by whom, and how much each? Should all these details be part of the bylaws? What is your answer to this, Greg.
    Thank you.

    1. Great question, Isaac. Initial “investments” in a nonprofit startup really only have two legitimate characterizations: either it is a tax-deductible donation or it can be set up as a loan to be paid back. It can never be used as a measure of ownership…it simply isn’t legal. Most startups we work with usually take the donation route, but not all of them. And, if you put in $5,000 and I put in $10,000, that just means I gave a bigger donation or loaned a greater amount. Percentages are really irrelevant in this setting.

  30. Greg, if a not for profit corporation bought penny stocks and made a profit, where should the money go when the corporation is dissolved? thanks

    1. We’ll leave for another day the fact that no nonprofit should be investing in “penny” stocks. If the organization is shutting down and has any assets, regardless of how they were acquired, those assets are permanently dedicated by law to a charitable purpose. In other words, the assets must be given to one or more other charities at dissolution.

      1. Yup, which is why I was a year from my doctorate in clinical Psychology and my university was bought by a “non profit” took 50 million in financial aid and GI bill funds, stole or invested it, left many of us homeless and unable to treat our patients and closed with 2 days notice., diagnosing us as F’d 🙁 For more information please google search Satan, or Federal Reciever Mark Dottore and Argosy University. Both searches likely lead to the same page.

  31. Our community privately owned swimming pool was initially operated as a for-profit corporation. People wanting to join the pool would pay a one-time “membership fee” and would receive a certificate stating that they were a shareholder in the corporation which conveyed a share of ownership to the person joining. In addition, members would have to pay annual dues. A few years ago the corporation changed to a non-profit corporation and there was no longer a membership fee nor did new members receive a certificate but they still had to pay the annual dues. Because of that change, what happens to the equity share that all of the previous members (“owners”) had purchased?

    1. This sounds like a legally complicated situation. At the simplest level, the equity no longer exists given that a nonprofit corporation has no mechanism of ownership (stock). But, the devil is in the details. Did the fractional owners (members) approve the creation of the nonprofit and dissolution of the for-profit? And if they did, were they aware that their ownership would go away? What formal steps were taken to transfer ownership of real property from one entity to another?

      These are really somewhat rhetorical questions, Bruce. Frankly, I would consult an attorney familiar with corporate matters to make sure everything is buttoned down.

  32. In my opinion, i (being part of the board) would suggest that the president appoint a committee chairman to gather a committee to deal with the issue…

    I also feel your By-Laws holds the answer, or should… if it doesnt, better speak to the by laws committee chair..

    I have been the by laws committee chair for our non profit for over 10 yrs. a very important position to hold (in my opinion)

  33. Does a Volunteer Fire Department with 501(c)(3) designation and getting a majority of funding through a local government entity meet the definition of “public charity”? Or is another term more appropriate? Some claim to be a “private” organization but that is an ambiguous term. Any thoughts on that?

      1. There is a dispute between a local government and a volunteer fire department over the “ownership” issue. State law says nonprofits can’t issue stock. Local government claims “taxpayers” own it. The board of directors claim they own it. I say they’re both wrong and it seems you do, too.

        The directors control and run the operation. Government provides funding for that operation for the public benefit. Unless that funding is “earmarked” – as in some government grants – it goes toward the general fund and applied within the discretion of the board and management. So long as they’re meeting their general goals, they’ve met their obligation as to application of funds.

        While it plays to the public in a philosophical sense to claim taxpayers own it, it makes no sense at all in actual practice. Taxpayers fund many things over which they have no direct say. An independent corporation of any description is just that. While the hand that feeds you implies a close relationship, there is still that dividing line over who controls what. In this case, a local politician wants to have a line-item veto over how funds are applied in day-to-day operations, claiming he can “save the taxpayers money”. In effect, he wants to manage the corporation. Naturally, the directors dispute his authority to that. I believe funding has been severly curtailed as a result.

        Just like to hear your comments and perhaps get some reference to authoritative sources that might clarify the situation.

        1. Your comments are dead-on, Randall. Saying “the taxpayers own it” is a great turn-of-phrase, but it is essentially meaningless. Local government doesn’t own it, either. If it exists as an IRS recognized, 501c3, charitable entity, then it is an independent corporation governed by a board of directors and accountable to the state under corporate law and to the federal government under IRC 501c3. Any “control” ceded to another body or agency would have to be approved by the board in accordance with the bylaws. Any such agreement should necessarily be contractual in nature and revokable by the board. Reference IRS Publication 557 for all the nitty-gritty.

          Sounds politically messy…

          1. Would there also be some legal concerns to allowing a “proxy” to assert substantial authority over the nonprofit? Seems like by failing to maintain an arms-length independent status could risk losing either corporate status or 501(c)(3) status. And might that proxy be held liable for actions of the nonprofit if there was de facto control by the proxy?

            I’ll look into that publication for more detail. I have some ideas how this ought to be resolved to the satisfaction of both parties but I’d appreciate just an outline of what you feel would be reasonable. Bear in mind, the funder has legitimate concerns as to where the money is going. The corporation has concerns over someone effectively taking over the business.

          2. Another question. Given the scope of an organization being limited to one county with population about 30,000, what would you recommend in terms of satisfying “accountability” to the public at large? Is Form 990 usually sufficient? As a matter of public relations, what more could be done to demonstrate to the public what they get for their dollar? Thanks for any help.

  34. I am wondering what the difference is between a foundation and a non-profit corporation. I want to file for a non-profit and I will be calling ya’ll for some help. I have some money that I would like to use to get started in a Ministry of Helps. I know this is probably a dumb question but I was just wondering the difference.
    Thanks for your time.

    1. Not a dumb question at all. In fact, we answer similar questions almost daily. Many nonprofits call themselves a “foundation” when in fact they are not…at least not technically. In IRS terminology, a foundation is a specific type of 501c3 nonprofit, one that usually has no active programs. True foundations typically raise money to fund the work of 501c3 “charities” that conduct actual programs. And to further confuse the matter, a nonprofit corporation is the business entity type that most foundations and charities choose to adopt. You will learn much more about how this all works once you get started with us.

  35. I am a member of a board that runs a 501c3 housing project. It has been in existance for 35 years. The board wants to sell it. Where do the proceeds go? Can we take a consulting fee? We have never been compensated.

    1. n all candor, there is no way to answer a question of this complexity in a few sentences. I highly recommend that you contact us and reserve some consulting time to discuss your plans. You have way too much at stake.

  36. My Dad and I have invested our lives savings and are working to start a non-profit Adult Daycare Facility. Dad owns the building and the land outright, and I was wondering if it would be smart to keep that in his name and have the business rent from him? That way, since we’re putting everything we have into this, he will still have something left. What are the pro’s and con’s about this, besides saving on property taxes? If we end up disolving some day and the building was part of the non-profit, would they also sell that and give it to another charity?
    Thanks for the help!

    1. Hi, Linda…

      It is interesting that you use the term invested. This is a tricky thing you are suggesting. If you go forward with making the facility nonprofit (presumably 501(c)(3)), then neither you nor your father will “own” it. It is technically possible to have the nonprofit rent the physical facility, but then you have potential conflict of interest problems if you all are running the program and owning the property. I guess I’m failing to see what you are investing in. It certainly isn’t the program, because you cannot profit from that. If it is rental income, the lack of arms-length dealing will be a problem.

      I strongly counsel you to get some professional help before you go much further. There are some serious landmines where you are headed. Given the amount of personal money you are talking about, I would hate to see you all get in over your heads. Our office offers time-based consultation for just this type of situation. Just give our office a ring.

      Good luck to you!

  37. So is it possible to start a non profit to help create jobs and do a service to the community.

    1. That’s a really broad question, but, in principle, yes. There are lots of 501(c)(3) nonprofits which have as their purpose economic development, job training, etc. The key is making sure that the organization’s activities do not directly benefit for-profit companies, but rather job seekers and/or the community at large.

  38. {Organization Name Hidden} is a non profit 501(c)(3) Public Charity , we have two years of successful operation behind us. My question is when we apply for credit the grantors almost always look past the corporation entity legal status and requires personal liability from a officer of the Corporation. Is this legal in the state of Georgia?

    1. Most likely, yes. It is very common for lenders to require principals of for-profits and nonprofits to “co-sign” for a loan. This is done because the organization itself either is under-collateralized or has insufficient credit history…or both. Given the current lending climate, expect those demands to increase, not decrease.

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