How Do I Convert From a Nonprofit to an LLC?

By Salvatore Jackson

A limited liability company, or LLC, is a type of business organization that combines the limited liability protections of a corporation with the pass-through federal taxation and simple filing requirements of a partnership. During the course of life of your business, it may be necessary to convert your nonprofit corporation to an LLC. Converting to an LLC requires filing a document, called an Articles of Organization, with the state agency responsible for registering business organizations. You must also assign all assets and debt of your nonprofit corporation to your new LLC and terminate the nonprofit corporation.

A limited liability company, or LLC, is a type of business organization that combines the limited liability protections of a corporation with the pass-through federal taxation and simple filing requirements of a partnership. During the course of life of your business, it may be necessary to convert your nonprofit corporation to an LLC. Converting to an LLC requires filing a document, called an Articles of Organization, with the state agency responsible for registering business organizations. You must also assign all assets and debt of your nonprofit corporation to your new LLC and terminate the nonprofit corporation.

Step 1

Create your LLC by filing an Articles of Organization. While the method varies by state, creating an LLC requires filing an Articles of Organization with the state agency responsible for regulating business organizations. You will need to come up with a name that is not in use in your state, as well as a business purpose of your LLC. You will also need to designate a registered agent, a person or business that will receive service of process on behalf of your business. Depending on the state, the filing fee may range anywhere from $40 to $350. Consider consulting with a lawyer, especially if the LLC is composed of multiple members with a complex operating agreement.

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Step 2

Assign all of the assets of your nonprofit corporation to the LLC. Transferring the assets of your nonprofit corporation to your LLC involves drafting an asset transfer agreement. Set forth the assets of your nonprofit corporation and indicate that they are being assigned to your LLC. Have the board of directors of your nonprofit corporation and the members of your LLC sign the asset transfer agreement.

Step 3

Assign all of the debts of your nonprofit corporation to the LLC. The transfer of nonprofit corporation debts to an LLC can be done by creating an assumption of debt agreement. Set forth all of the debts of your nonprofit corporation and indicate that they are being transferred to the LLC. Have the members of the board of directors of the nonprofit corporation and the members of the LLC sign the debt assumption agreement.

Step 4

File an Articles of Cancellation form to terminate your nonprofit corporation. While the method varies by state, dissolving a nonprofit corporation requires filing an Articles of Dissolution. Typically, you will need to provide the name and address of your nonprofit corporation, the name and address of all officers and directors of your nonprofit and the date of dissolution. Before filing, you may need to hold a meeting of all stockholders in your LLC and have them agree to dissolve. Depending on the state, the filing fee may run up to $40.

Step 5

Inform the Internal Revenue Service of the termination of your nonprofit corporation. On the tax return for your nonprofit corporation, indicate that the return is the “Final Return” for your nonprofit corporation.

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How to Convert From an LLC to a Nonprofit Corporation

References

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