Achieving nonprofit status for your business can be an arduous process. But what do you do if you realize your business would be better served as a for-profit? Converting a for-profit to a nonprofit is a relatively direct process. However, changing from a nonprofit to for-profit business in Florida can only be achieved indirectly.
Whatever your reasons for switching from a nonprofit to a for-profit business in Florida, BrewerLong can help. Founded by law school friends, we know the importance of creating and maintaining good relationships. Our experienced Florida business attorneys can design a strategy tailored to your unique needs and, hopefully, help you meet your business needs for years to come.
What Are Nonprofit Entities?
Nonprofit entities are organizations operated to benefit society rather than earn profit. Most nonprofits are exempt from paying state and federal taxes. In exchange, nonprofits are subject to several limitations that for-profit entities are not.
Forming a Nonprofit
You first gain nonprofit status at the state level. In Florida, your nonprofit might be a(n):
- Not-for-profit corporation,
- Agricultural cooperative marketing association, or
- Nonprofit cooperative association.
You form your nonprofit by filing articles of incorporation with the Florida Department of State.
Qualifying for a Tax Exemption
Under Internal Revenue Code (IRC) section 501(c)(3), tax-exempt nonprofits are:
- Charitable — operated for scientific, educational, religious, public health, literary, or similar purposes;
- Religious — operated for religious or spiritual purposes; or
- Private foundations — operated using specific sources of funding, typically offering grants.
Several non-501(c)(3) nonprofit entities qualify as well.
To maintain tax-exempt status, you must:
- Be organized and operated exclusively for exempt purposes;
- Not earn benefits for private shareholders or individuals; and
- Not participate in political lobbying or campaign activity.
Organizations exempt from federal income tax are also exempt from most Florida taxes.
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What Are For-Profit Entities?
You can operate a for-profit entity for almost any purpose as long as you do not violate the law. You can organize your for-profit business in several different ways, offering operational flexibility, such as:
- Sole proprietorships,
- Limited liability corporations (LLCs), or
Like nonprofits, you form for-profit entities by filing articles of incorporation with the Florida Department of State.
Can You Directly Convert a Nonprofit to a For-Profit Business?
Direct conversion from nonprofit to for-profit is not possible. To be able to change a nonprofit to a for-profit business in Florida, the nonprofit would have to own its assets. However, nonprofit assets are generally held in trust for the public. Since no one person or people owns them, they cannot be converted to private ownership.
How Can You Change a Nonprofit Business into a For-Profit Business?
Qualifying for and maintaining nonprofit status sets limitations on your business that may not be worth the cost. Turning a nonprofit into a for-profit business in Florida can be accomplished in a couple of ways, typically through dissolving the nonprofit or creating an entity to work with it.
Dissolving the Nonprofit
One option is to dissolve the nonprofit and replace it with a for-profit. A not-for-profit can be dissolved through a majority vote of the voting members or the board of directors. Agricultural and nonprofit cooperatives can be dissolved by a two-thirds member vote.
Handling nonprofit assets
When the nonprofit is dissolved, you must handle any remaining assets. You must follow state law and your business agreements, which set limits on where assets can go. In some, but not all, cases, you can obtain assets for the successor for-profit organization.
Final tax considerations
When you dissolve the nonprofit, you must file final state and federal tax returns. You generally have to explain to the Internal Revenue Service (IRS) what happened during the dissolution, including what happened to nonprofit assets. The IRS is trying to verify that the dissolution was consistent with no one owning a nonprofit.
Working with the Nonprofit
Depending on your circumstances, you may want to work with the nonprofit instead of dissolving it. You may either arrange to purchase assets or establish a separate for-profit entity to operate alongside it.
Arranging to purchase nonprofit assets can be difficult and sometimes impossible. However, with careful planning, you may be able to obtain specific assets for your for-profit organization.
Creating another organization
If you create a for-profit entity to work with the nonprofit, you can lease space or licenses or even establish a for-profit subsidiary. Although this gives you less flexibility and control, it can allow some organizations to get the best of both worlds.
Contact an Experienced Business Attorney
There are many reasons you might want to change your Florida nonprofit organization into a for-profit entity. While turning a for-profit into a nonprofit can be accomplished directly, the reverse can be complicated and will likely invite scrutiny to ensure the nonprofit’s purposes are not harmed. If you are looking for options, the business attorneys at BrewerLong can help. Our experience after more than a decade practicing Florida business law allows us to tailor our strategies to help you successfully transition from nonprofit to for-profit. Contact us today to set up a consultation to learn more.
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