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Patricio P Lopez III

Patricio Lopez’s Answers

1 total

  • Could this be structured as a non-profit rather than a b corp?

    I was considering opening up a business that sets up college students with donor investors. Basically, a student would fill out a profile and then a donor would choose to invest in that student. At the end of college, the student would repay a per...

    Patricio’s Answer

    As currently proposed, your venture would not qualify as a tax exempt organization under the US Internal Revenue Code. There are various organizations that can qualify for tax exempt status, the most common of which are organizations qualified under IRC Sec 501 (c) (3). 501 (c) (3) organizations are ones that foster certain charitable, education, and scientific endeavors. Exempt status is also available for other activities under other IRC subsections, such as exempt homeowner associations. However, the common thread among exempt organizations is that they are not formed to pursue business/profit seeking ventures. You describe your "donors" as "investors." You indicate that they will receive a percentage of the students' future earnings and that they will be able to review the students' profiles and pick the student in whom they wish to invest. There is no suggested limit as to the return to the investor, and the investor obviously has an incentive to pick the student who will likely yield the highest future return/payments to the investor. The students are required to repay a percentage of there earnings, and, potentially, more than they received in assistance. This is not a charitable/non-profit activity designed to support education, but a profit making business plan. If you alter your concept so that it is intended to foster educational or charitable purposes, you can qualify for exempt status. You need to know that all non-profits are subject to the "private benefit rule," which simply stated means that a non-profit cannot be formed or operated in a way so as to provide private benefits to any individual or group, but rather must be operated to further an approved tax exempt purpose. Additionally, your "donors" would not be entitled to charitable deductions for "donations" that are structured as investments, even if the organization has tax exempt status. As others have suggested, there are ways to alter your concept so that it fits within the tax exempt framework, but such changes may not allow you to generate the "donations" you need to operate. Providing scholarships to deserving students or facilitating no or low interest loans for education, would be an exempt purposes, but may not allow you to attract the donors you need to operate. You could retain enough of the donations or loan repayments to fund reasonable overhead and pay reasonable salaries, but you could not distribute excess earnings for purposes other than a permitted exempt purpose. --Good luck. helping kids get an education is a valuable endeavor in whatever form your efforts take. Pat

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