How to Change a Corporation From Nonprofit to Profit

By Elizabeth Rayne

A nonprofit organization is a public entity. Unlike a for-profit corporation, a nonprofit is not owned by individuals and it cannot simply convert to a for-profit business. Its officers and employees may manage the organization's day-to-day operations but they have no ownership interest. When a nonprofit corporation is formed, its organizing documents must state that the organization's activities will not benefit any particular individual, and upon dissolution, the assets must be distributed to another nonprofit. If you no longer want to operate as a nonprofit, you must dissolve the organization and form a new corporation.

A nonprofit organization is a public entity. Unlike a for-profit corporation, a nonprofit is not owned by individuals and it cannot simply convert to a for-profit business. Its officers and employees may manage the organization's day-to-day operations but they have no ownership interest. When a nonprofit corporation is formed, its organizing documents must state that the organization's activities will not benefit any particular individual, and upon dissolution, the assets must be distributed to another nonprofit. If you no longer want to operate as a nonprofit, you must dissolve the organization and form a new corporation.

Vote to Dissolve the Nonprofit

Closing a nonprofit corporation is a major decision that may not be made by an individual. If a board of directors is in place, those individuals will decide whether or not to dissolve the organization. The board should make a record of the vote, including the number of votes in favor of dissolution.

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File Articles of Dissolution

The next step in the process of winding down a nonprofit organization is filing articles of dissolution in the state where the nonprofit was incorporated. Contact the Secretary of State to determine which forms must be filed and the applicable filing fees. In most states, a director or officer will be required to sign the articles of dissolution.

Pay Debts and Pay Final Taxes

Because the nonprofit corporation is dissolving, you must pay all the debts of the organization and any final taxes before distributing assets. Notify all lenders and creditors that the organization is closing. If you have employees, distribute final paychecks. File final annual reports or tax returns with the state. If you are registered as an exempt organization with the IRS, you must likewise file a final Form 990 and check the "terminated" box at the top of the form.

Distribute Assets

When a nonprofit organization dissolves, the assets must be distributed to another nonprofit organization. The articles of incorporation may specify which nonprofit organization or agency will receive the assets. If not, it will be up to the board of directors to choose a recipient. Nonprofit assets may not be distributed to any individual or for-profit entity.

File Articles for the New Corporation

Once the nonprofit is officially dissolved, you may create a new for-profit corporation. This requires filing articles of incorporation with the Secretary of State where the corporation's principal office will be located. You should also research whether the new corporation will be responsible for licenses, permits or registrations. As a for-profit corporation, you'll likely be liable for business income tax, sales tax, and other taxes and fees that you probably were not required to pay as a nonprofit organization.

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Maryland Rules for Dissolving Non-Profits

References

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How to Apply for Nonprofit Status in New York State

For an organization to be exempt from New York state taxes, it must incorporate as a nonprofit corporation by filing nonprofit articles of incorporation with the New York Department of State under the state Not-for-Profit Corporation Law. There are a number of steps all nonprofit organization should take to operate as a functioning organization in New York. If the organization plans to eventually file for federal 501(c)(3) nonprofit status, there are additional provisions that you must include in the articles of incorporation.

How to Dissolve a Charitable Non-Profit Organization

Charities provide important services to their communities, but many charities eventually cease to operate. For example, a nonprofit may complete its mission, or it might run out of funding or community support. However, dissolving a charitable nonprofit that is registered with the state is not as simple as closing the doors. A nonprofit must follow proper dissolution procedures according to state law, or it might incur fines or other penalties.

Alabama Non Profit Corporation Laws

In Alabama, you must form a nonprofit corporation by filing a specific type of incorporation document. Although the corporation will be subject to restrictions that do not bind for-profit corporations, Alabama nonprofit corporations enjoy significant tax advantages, and so do their donors. To receive federal tax benefits, you must apply separately to the IRS.

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