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A non-profit LLC is a type of organization that protects its members from unlimited financial liability and allows for tax benefits in the US. It can own property and operate like a for-profit business while maintaining its non-profit status. Limited liability protects members from personal bankruptcy, but additional requirements apply. It shares characteristics of partnerships and corporations and is a relatively rare form of legal entity.
A non-profit LLC is a type of unincorporated association in the United States. LLC stands for Limited Liability Company, which is a form of organization that protects its members from unlimited financial liability. Forming an LLC can allow a non-profit organization to own property and enjoy many other legal benefits. Unlike a corporation, however, a limited liability company’s income is taxed as the direct income of its owners or investors. The non-profit aspect of a non-profit LLC allows for some tax benefits in the United States.
Non-profit organizations use revenue to maintain or expand operations and do not distribute excess profits to investors, employees or interested parties. Many nonprofits are structured as for-profit businesses, however, as these models are often the most efficient. Non-profit organizations can be legally organized in several ways: corporations, trusts and cooperatives can be non-profit. If certain criteria are met, nonprofit organizations may be exempt from paying some federal taxes in the United States. This benefit makes setting up a non-profit LLC an attractive option for many organizations.
Limited liability carries certain protections under the law from a company’s borrowing costs. It can reduce personal risk of venturing into new markets and economic niches. If a business venture goes bankrupt, limited liability can protect those involved from personal bankruptcy. Conversely, the owners of an unlimited partnership are personally liable for all debts incurred. The nonprofit LLC model is often chosen because of the legal protections offered by limited liability.
Additional requirements are generally applicable to a limited liability organization, such as preparing periodic public financial statements and filing a separate tax return. It is also often difficult to get lenders to finance the activities of an LLC without the loans being personally guaranteed. The differences between an LLC and a corporation are often ignored in international jurisdictions, as foreign countries often treat an LLC as a corporation for tax purposes. In fact, not all states in the United States recognize the status of a non-profit LLC – this is a relatively rare form of legal entity that has arisen in recent times.
A non-profit LLC shares some characteristics of both partnerships and corporations. Like a partnership, it does not trade shares on an exchange. This may lead to investment strategies more in line with small partnerships with specific investors. The limited liability aspect, however, is more common in corporations. As with corporations, the “corporate veil” of legal protection does not apply if members of a non-profit LLC commit fraud or cause harm to a third party.
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