Difference Between an LLC & a Non-Profit

By Eric Novinson

An organization can choose to either be a nonprofit, or select one of several types of for-profit structures, including the limited liability company. A state must specifically allow investors to form an LLC in a state and must approve the LLC application. Nonprofits qualify for tax exemptions that an LLC does not receive, but there are also limitations on a nonprofit's spending and political speech that do not apply to an LLC.

Income Distribution

A nonprofit does not have to break even or operate at a loss and can still earn income. The nonprofit has to invest its income back into the organization or give it away to another charity and may not distribute any of these earnings. An LLC earns a profit and distributes the money to its members. The LLC has more flexibility than a corporation when it distributes money to its members and does not have to give each member a distribution of earnings that is proportional to each member's share of ownership.


A nonprofit must incorporate to qualify for tax exemptions, according to California State University, Dominguez Hills. Incorporated nonprofits have governance requirements that do not apply to an LLC. An incorporated nonprofit must appoint a board of trustees, hold meetings and keep records of meeting minutes to keep its tax exemptions. A limited liability company does not need to have a board of directors and conduct regular meetings, unlike a corporation. The LLC is cheaper to manage because the officials do not need to pay for regular board meetings and easier to set up because an incorporated nonprofit has to submit documents to the state to prove that its managers intend to provide a public benefit.

Ready to start your LLC? Start an LLC Online Now


A nonprofit company has no shareholders' equity. The people who fund the nonprofit are donors and do not have any ownership rights in the nonprofit, and if the nonprofit closes, it has to give away all of its assets. A limited liability company does have ownership shares and if it disbands, each member will receive some of the company's assets.


The purpose of the nonprofit is to provide a service to the public, and the purpose of an LLC is to earn a profit for its members. Nonprofits can still buy and sell stocks and trade other investments, but the intent of their tax exemption is that they will use their revenue to provide something that helps the public, such as a university, a museum, a zoo or a park. The IRS can take away a nonprofit's tax exemption if the nonprofit isn't using its income to benefit the public.

Ready to start your LLC? Start an LLC Online Now
Can a Nonprofit Business Earn an Income?


Related articles

How to Convert a 527 to a 501(C)

The Internal Revenue Code establishes a range of different tax-exempt entities, each of which is governed by its own set of rules. Converting an organization exempt under Section 527 of the Code into an organization exempt under Section 501(c)(3) requires particular care, because a 527 organization is a tax-exempt organization that engages in political campaign activity but a 501(c)(3) organization is prohibited from supporting or opposing a candidate for elected office.

Non-Profit Vs. Incorporation

When we think of corporations, the image that comes to mind is usually a for-profit venture. However, nonprofits can also benefit from incorporation, particularly if the organization is interested in pursuing federal tax exempt status. Yet, the formalities of being incorporated under state law may not be desirable for all organizations operating in the public interest. Smaller nonprofits that receive limited contributions may choose to remain an unincorporated association. Knowing the benefits and drawbacks to incorporation can help you decide whether it makes sense to pursue a corporate structure for your nonprofit.

Requirements to Maintain 501C3 Status

More than 100 501(c)(3) organizations lose their exempt status every year, according to the Nonprofit Risk Management Center. The Internal Revenue Code section 501(c)(3) is a provision in the federal tax code, which allows certain nonprofit organizations, including charities, churches, educational institutions and other organizations that meet the requirements to be exempt from certain taxes. The IRS regulates and regularly reviews exempt organizations to ensure that they are following the regulations and that the organization continues to do the work that led to its exempt status. Failing to follow the guidelines can lead to fines and, in some cases, the loss of 501(c)(3) status.

LLCs, Corporations, Patents, Attorney Help

Related articles

Non Profit Vs. for Profit Business: The Differences

A nonprofit generally refers to an organization that qualifies for special tax status under section 501(c)(3) of the ...

Rules for 501(c)3 Corporations

Many charities pursue 501(c)(3) status because it allows organizations to avoid certain taxes and accept tax-deductible ...

What Are the Tax Advantages of LLCs?

A limited liability company, or LLC, is a business entity that has the advantage of offering personal liability ...

What to Do With Money When Dissolving a 501c3?

To qualify for 501(c)(3) status, an organization must operate exclusively for religious, charitable, scientific, ...

Browse by category
Ready to Begin? GET STARTED