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MShore Law
MShore Law, Attorney
Category: Business Law
Satisfied Customers: 25285
Experience:  Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements
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whats the best way to set up business that will earn UBTI

Customer Question

what's the best way to set up business that will earn UBTI for benefit of a 501(c)(3)? Can LLC be owned by the nonprofit and receive donations from the LLC to the nonprofit? Is there a better way to transfer 100% of business income to nonprofit?
Submitted: 2 years ago.
Category: Business Law
Expert:  MShore Law replied 2 years ago.
Thank you for the post, I am happy to assist you by answering your questions. What is the nature of the business?
Customer: replied 2 years ago.

Network marketing of deregulated energy. Desire to establish an income position as subsidiary of nonprofit that will be able to earn income as marketing associate (1099 reporting from the energy company). More than direct marketing, the business entity is working to help other nonprofits use cause marketing with a network marketing program as fundraising for their own organization. www.energywithamission.org


 


The nonprofit 501c3 is established to act as a grant foundation that will contribute to other nonprofits.

Expert:  MShore Law replied 2 years ago.
Are you familiar with the Mozilla Firefox model?
Customer: replied 2 years ago.

no


haven't heard of it

Expert:  MShore Law replied 2 years ago.
ok, not a problem. The Mozilla Corporation (which runs Firefox) is the for profit arm of the Mozilla Foundation, which is actually a non-profit. The revenue generated by the Corporation is then reinvested into the mission of the Foundation. Both entities are corporations however. You can have a for profit LLC that is owned by the nonprofit corporation. The decision of whether the structure the for profit as a LLC or Corp depends on what level of structured governance you want (the LLC is obviously the easier of the two due to the lack of formal requirements compared to the Corp). Please let me know if you need additional guidance.
Customer: replied 2 years ago.

Thanks. I'll look further into the Mozilla structure. If we use the LLC structure as subsidiary of the nonprofit, what's the best way to transfer income from the LLC to the nonprofit with as little taxation as possible?

Expert:  MShore Law replied 2 years ago.
Thank you, XXXXX XXXXX LLC going to be a single member LLC?
Customer: replied 2 years ago.

not single member


 

Expert:  MShore Law replied 2 years ago.
Great, then it is not a disregarded entity. The LLC can elect taxation as a corp and prior to conveying any profits to its members, pass along the revenue to the nonprofit so the members have no tax basis in the LLC. Obviously this would require proper planning with your accountant however.
MShore Law, Attorney
Category: Business Law
Satisfied Customers: 25285
Experience: Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements
MShore Law and other Business Law Specialists are ready to help you
Customer: replied 2 years ago.

thanks. This has been helpful to give us some initial direction. Is there any advantage to creating the LLC outside PA or NJ (residence of nonprofit and LC members)? I notice many companies are organized in DE.


 


Appreciate your help !!

Expert:  MShore Law replied 2 years ago.
Thank you, yes, the advantage is the DE has a well established body of business friendly law. Also, if interested in anonymity, DE lends itself to that as well.
Customer: replied 2 years ago.

Thanks again for assistance in general info about setting up for profit subsidiary for our nonprofit as social business for fundraising. We'd like to move forward with a LLC that will pass the greatest amount of income on as donation to the 501(c)(3). Mozilla structure you pointed us to looks ideal. We now need some help setting up the LLC to achieve our goals, but we really don't have any income yet. Looking for legal assistance we can afford. Any idea what it will cost? Options?


 


Ron King, dmin


Energy WIth a Mission

Expert:  MShore Law replied 2 years ago.
Setting up a basic LLC can be rather simple, and in all honesty you do not necessarily need counsel to do so. But if you retain counsel, you should expect to pay around $500.

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