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Hello I currently run a LLC theater company in California.

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Hello I currently run...
Hello I currently run a LLC theater company in California. I am wondering about turning it into a non-profit LLC. However, I do have a few questions. 1. Does an LLC non-profit have to have a board, or can I just remain in control? 2. Can a non-profit LLC fundraise, and are donations tax deductible. 3. Are non-profit LLC's legal in California Thanks Ben
Submitted: 7 years ago.Category: Business Law
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10/1/2010
Business Lawyer: RGMacEsq, Attorney replied 7 years ago
RGMacEsq
RGMacEsq, Attorney
Category: Business Law
Satisfied Customers: 17,511
Experience: Licensed Texas General Practice Attorney
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(1) That's hard to answer... What I mean is that you can run the LLC, but you cannot be an "interested person", in that you are also an employee of the non-profit and get paid for "services rendered". There's a conflict of interest here. You can do this if there is a board and the members of the board that are interested persons make up 49% or less of the board.
(2) Yes, they can fundraise, but donations will only be tax-deductible once is it is a 501(c)(3) organization. Thus, after you convert the LLC to a non-profit, you can apply for 501(c)(3) status. To apply for recognition by the IRS of exempt status under section 501(c)(3) of the Code, use Form 1023, Application for Recognition of Exemption and its instructions.
(3) Yes, domestic (i.e. California) non-profit LLCs are legal in California. See California Business Corporations Code section 17002(a): "...a limited liability company may engage in any lawful business activity, whether or not for profit"

Registration of a limited liability company (LLC) with the California Secretary of State (SOS) will obligate an LLC that is not taxed as a corporation to pay to the Franchise Tax Board (FTB) an annual minimum tax of $800.00 and a fee based on the annual total income of the entity. PLEASE NOTE: A domestic nonprofit LLC is a taxable entity and subject to the tax requirements stated above unless the LLC has applied for tax-exempt status and the FTB determines the LLC qualifies for tax-exempt status. Therefore, until such a determination is made, a nonprofit LLC must file a return and pay the associated tax (and, if applicable, the fee) every year until the LLC is formally canceled. If the LLC intends to seek tax exempt status:

-At the time of filing its Articles of Organization with the SOS, the LLC must include, in an attachment to that document, additional statements as required by the law under which the LLC is seeking exemption. Please refer to the FTB’s Exemption Application Booklet (FTB 3500 Booklet) for information regarding the required statements and for suggested language.

-After filing its Articles of Organization with the SOS, the LLC may apply for tax-exempt status by mailing an Exemption Application (Form FTB 3500), along with an endorsed copy of the Articles of Organization and all other required supporting documentation, to the FTB, P.O. Box 942857, Sacramento, California 94257- 4041.

-The FTB 3500 Booklet and Form FTB 3500 can be accessed from the FTB’s website at www.ftb.ca.gov or can be requested by calling the FTB at 1-800-338-0505. For further information regarding franchise tax exemption, refer to the FTB’s website or call the FTB at(NNN) NNN-NNNN

If you have any other questions, please let me know. If not, and you have not yet, please select the "accept" button. If you have already clicked "accept", or if you will in the future, please let me know so I can track these for my own reports and customer satisfaction stats. Thank you, XXXXX XXXXX good luck to you!
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Customer reply replied 7 years ago
Could you please clarify a few points for me please?

1. So if I make my current LLC into a non-profit, as long as I am not an "interested person" I can run the company without a board and have 100% control just like I do with my current for profit LLC?

2. Can a non-profit LLC become a 501(c)3? Am I still able to be 100% in charge if we do?
Business Lawyer: RGMacEsq, Attorney replied 7 years ago
(1) Yes. To the extent that you can run a for-profit LLC, you can run a not for profit LLC.

(2) Thank you for asking this question, as I did not address it in my previous answer. Most of the time 501(c)(3) filings are corporations. LLCs can file for 501(c)(3), but only if all the members are existing 501(c)(3) nonprofits, not people.

Again, thank you for asking this to clear things up. I would suggest, if you're wanting to convert your LLC to non-profit, to convert it to a non-profit corporation, so you can be able to offer the tax-exempt donations of a 501(c)(3) org.

If you have any other questions, please let me know. If not, and you have not yet, please select the "accept" button. If you have already clicked "accept", or if you will in the future, please let me know so I can track these for my own reports and customer satisfaction stats. Thank you, XXXXX XXXXX good luck to you!
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Customer reply replied 7 years ago
Thanks for your answers. I am still a bit confused about number two.

You said that if I file a non-profit LLC to be a 501(c)(3) its ok as long as "all members are existing 501(c)(3) nonprofits and not people"? What does that mean? Do I still remain in 100% control?

Is a non-profit corporation with 501(c)(3) run like a non-profit LLC with me in total control and no board of directors?

Basically I want to know if I can be in 100% control and a non-profit LLC with 501(c)(3).
Business Lawyer: RGMacEsq, Attorney replied 7 years ago
What that means is that you, yourself, cannot be either the sole member, or among a hundred other members, of a non-profit LLC and get 501(c)(3) status (which allows donations to be tax-deductible on the part of the donor). IRS rules state that if you are a LLC, your controlling members must be 501(c)(3) organizations themselves. But if you are a 501(c)(3) corporation (as opposed to LLC) you can be a natural person (rather than an organization) as a director and still be a 501(c)(3).

Yes, you can have a one director non-profit corporation in California. Now you have to have at least one, but you can have only one if that is what you wish. Note: if you want it to be a 501(c)(3) org, you cannot "work" (get paid for services rendered) to the corporation. Less than a majority of board members can get paid for services rendered (be interested persons) to be able to get 501(c)(3) status, and so if you wanted to work for the corporation, you'd have to have at least 3 board members, 2 of them not working.

Once you get this 501(c)(3) corporation, the corporation itself can be the sole member of the non-profit LLC, and in that instance have complete control over the NP LLC, and be able to get that established as a 501(c)(3) as well.

But this is going to be double the paperwork if you do it this way. You can convert your organization to a non-profit corporation, which you can have natural person(s) serve on the board of the corporation and still allow it to be a 501(c)(3). Only in the instance where you are trying to make a limited liability company (LLC) a 501(c)(3) must the members all be 501(c)(3) organizations.

I hope that clears things up. If you have any other questions, please let me know. If not, and you have not yet, please select the "accept" button. If you have already clicked "accept", or if you will in the future, please let me know so I can track these for my own reports and customer satisfaction stats. Thank you, XXXXX XXXXX good luck to you!
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