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Can the same company exists as a Non profit and a "For profit with separate bylaws for each side?

Atlanta, GA |
Filed under: Business

I've already formed a "For profit company that is selling a book online that I wrote. This book is an educational book for children and their families. I want to form a non profit side of my company to solicit donations in order to purhase books from the "for profit" side. The non profit side will purchase these books and give them to high school students and their families. Is that possible? Would there be any problem with the IRS if the non profit side purchased from the For profit side?

Or should I form a different nonprofit corporation (same purpose different name) to accomplished the same thing? Would there be any problem with the IRS if the non profit corporation purchased from a For Profit corporation with both entities owned by me.

Attorney Answers 3

Posted

Nonprofit corporations do not have "owners" (but they may have "members'), the board of the nonprofit administers the funds of the nonprofit to further the purposes of the nonprofit. If the latter can no longer be done, the nonprofit dissolves and the funds are distributed to one or more organizations with similar aims that have been named in the nonprofit's organizational documents.

The sort of arrangement you are describing raises a number of difficulties in that nonprofits are not supposed to be for the purposes of anyone's personal inurement ... and you clearly intend to benefit from the formation of this one. Nonetheless, it is a commonly pursued aim of many people, and if done correctly hardly anyone even bats an eye. The Kennedy family is relatively famous for forming charities they surround with their own profit-making ventures (ad agencies, law firms, consultancies) that rake off a good portion of what is donated.

The typical requirements for 501(c)(3) status for the nonprofit will tend to give adequate separation with respect to the control of the nonprofit, provided they are real and substantial and not just a sham.

But to do this you will need good legal counsel and an accountant familiar with charities and their specific needs and problems.

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Posted

It would need to be a separate nonprofit corporation and you will need to address some of the issues raised in the prior answer to the question.

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Posted

The short answer is, "No."

Legally, a corporation is either a for profit or a non-profit corporation. These are two different types of entities.

From a tax perspective, Congress and the IRS have imposed rules against private inurement and self-dealing. Generally, these rules make it very difficult for a non-profit to engage in any business transaction with another common that shares common ownership or control. (It can be done under limited circumstances, but it's analogous to riding a unicycle on a tightrope without a safety net.)

I've assisted several non-profit clients (and board members) through similar situations and would be happy to provide more specific information.

DISCLAIMER: I'm not your attorney, and this isn't legal advice. The information provided is intended to serve as a general overview, and you should not take action based upon this information without seeking legal counesl.

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