The Untapped Power of Nonprofits Owning Businesses: A Game-Changer for Revenue and Impact

Breaking the Mold: How Nonprofits Can Thrive by Owning, Not Just Operating.

As promised, I’m back with a far more comprehensive version of the article I shared previously about nonprofits owning LLCs. In that first post, I gave you a sneak peek into the concept, and now, I’m diving much deeper. This expanded version will walk you through the details, advantages, and practical implications of nonprofits leveraging LLCs to achieve greater sustainability and impact. If you're ready to explore how your nonprofit can benefit from this powerful framework, keep reading!

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I recently had the opportunity to attend a nonprofit seminar at one of Michigan’s business schools, where I learned more about how to start and operate nonprofits. As I’m considering launching a nonprofit myself to help entrepreneurs offset the costs of business and sales development services, I was eager to connect with others who share a similar passion for giving back to their communities.

During the seminar I met some truly dynamic individuals, one of whom owned a production company that helps creatives—dancers, singers, fine artists, etc.,—offset production costs, giving them more freedom to create without the financial burden. As we chatted, she shared her dream of owning a building to generate revenue for her nonprofit, instead of spending time constantly searching for grants.

As I listened to her challenges, I felt compelled to share with her that there’s a simpler way for nonprofits to tackle this challenge, and I shared with her the concept of a nonprofit owning an LLC. Disclaimer: I’m not an attorney or an accountant, but I explained how the LLC could be structured to own a building, acquire business credit, sell goods and services, and generate revenue that could help fund the nonprofit's core activities.

After our conversation, my mind wouldn’t stop racing. The more I thought about it, the more I saw how beneficial this framework could be for nonprofits. So, I decided to put my thoughts into an article and share this information with you. Enjoy the read, and if you find the content helpful, please like, comment, and share. Let’s spread the word and let people know there’s valuable content here at The Grow Givers Project. Your engagement helps us continue serving the entrepreneurial community!

Disclaimer: This content has been made available for informational and educational purposes only and is not meant to be a substitute for legal, accounting, or other professional advice. If you have specific questions about any legal matter, you should consult with an attorney or other professional services provider.

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Things to Consider

Nonprofit organizations often seek innovative ways to expand their mission and generate revenue while staying compliant with IRS rules. One strategy some nonprofits use is owning a Limited Liability Company (LLC).

Although LLCs are traditionally associated with for-profit ventures, nonprofits can indeed own LLCs as long as the activities of the LLC align with the nonprofit’s mission. A nonprofit organization is granted tax-exempt status by the IRS based on its charitable, religious, educational, or other exempt purpose. For a nonprofit to own an LLC without jeopardizing its tax-exempt status, the LLC’s operations must be consistent with this mission.

For example, a nonprofit focused on teaching people about the photography industry could own an LLC that operates a retail store selling photography equipment and memorabilia. The nonprofit's mission could align with this retail activity, as the store helps fund the nonprofit's educational programs and provides photography-related products for students. However, if the LLC started selling unrelated products or operated in a way that did not align with the nonprofit’s mission, the nonprofit could risk losing its tax-exempt status.

Owning an LLC can offer a nonprofit organization several advantages, especially in terms of liability protection, operational flexibility, and revenue generation:

1. Liability Protection

One of the key advantages for nonprofits in owning an LLC is liability protection. LLCs provide limited liability to their members, which means the nonprofit organization, as the LLC’s sole owner, is generally protected from the liabilities or debts incurred by the LLC.

Consider the example of a photographer who runs a nonprofit teaching people how to become photographers. The nonprofit owns a building where classes are held, but it also runs a retail store within the building, selling photography equipment and memorabilia. If someone were to sue the store due to a product defect or an accident on the premises, the LLC structure helps protect the nonprofit from those liabilities. Without the LLC, any legal issues related to the building or store could impact the nonprofit’s assets and operations, potentially threatening its core mission.