A non-profit LLC is a type of unincorporated association in the United States. LLC stands for limited liability company, which is a form of organization that shields its members from unlimited financial responsibility. Forming an LLC can allow a non-profit organization to own property and enjoy many other legal benefits. Unlike a corporation, however, income for a limited liability company is taxed as direct income of its owners or investors. The non-profit aspect of a non-profit LLC allows it certain tax benefits in the US.
Non-profit organizations use revenue to maintain or expand operations and do not distribute excess profits to investors, employees, or stakeholders. Many non-profits are structured like for-profit businesses, however, because these models are often the most efficient. Non-profits can be legally organized in several ways—corporations, trusts and cooperatives can be non-profit. If certain criteria are met, non-profits can be exempt from paying some federal taxes in the US. This advantage makes forming a non-profit LLC an attractive option for many organizations.
Limited liability entails certain protections under the law from the financial burdens of a company. It can reduce the personal risk of venturing into new markets and economic niches. If an entrepreneurial venture fails, limited liability can shelter those involved from personal bankruptcy. By contrast, the owners of an unlimited company are personally responsible for all debts incurred. The non-profit LLC model is often chosen because of the legal protections offered by limited liability.
Additional requirements are generally applicable to a limited liability organization, such as making public financial statements at regular intervals and filing a separate tax return. It is often also difficult to get creditors to fund the activities of a LLC without loans being personally guaranteed. The differences between an LLC and a corporation are frequently ignored in international jurisdictions, as foreign countries often treat an LLC as a corporation for tax purposes. In fact, not all US states recognize non-profit LLC status—it is a relatively rare form of legal entity that arose in recent times.
A non-profit LLC shares some characteristics of both partnerships and corporations. Like a partnership, it does not trade stock on an exchange. This can lead to investment strategies more in line with small partnerships with specific investors. The aspect of limited liability, however, is most common in corporations. As with corporations, the “corporate veil” of legal protection does not apply if members of a non-profit LLC commit fraud or cause damage to a third party.