Can I convert my for-profit business into a nonprofit organization?
The decision to convert from for-profit to nonprofit status in the United States involves more than simply filing to become tax-exempt. First, you need to consider whether your current business activities qualify as charitable activities under section 501(c)(3) of the Internal Revenue Code.
Get started with these two Candid resources, the video Can My Business Be a Nonprofit? and the course Is Starting a Nonprofit Right for You? Attend the class in person or watch it as a video.
Since you would need to change your filing status with the IRS, it is important to research its regulations on charitable organizations. Keep in mind that the IRS also classifies other types of tax-exempt entities, such as business leagues, labor and social welfare organizations, each with their own restrictions and eligibility requirements.
You also need to check with your state agency (typically the Secretary of State or Attorney General's office) to find out what they require you to submit. Locate your state's charity office.
Incorporating as a nonprofit involves a certain loss of personal ownership over the organization, since all nonprofit organizations are run by a board of directors. It is important for you to consider the pros and cons of incorporating as a nonprofit before you make your decision.
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See our related Knowledge Base articles:
- How can I find board members for my nonprofit?
- How do I write a business plan for a nonprofit organization?
- What is social enterprise?
- Can my organization have a subsidiary?
See how ready you are to start a nonprofit with Candid's Nonprofit Startup Assessment.
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Explore resources curated by our staff for this topic:
Could You Turn Your Business Into a Nonprofit?
This article explains how to convert a for-profit into a nonprofit and how to determine whether your for-profit is eligible to become a nonprofit.
Exemption Requirements - Section 501(c)(3) Organizations
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may benefit any private shareholder or individual.
How can our for-profit company become a nonprofit?
BoardSource answers this question about conversion to a nonprofit organization. (Scroll down to the bottom of the webpage).
Limited Liability Companies as Tax-Exempt Organizations (PDF)
Limited Liability Companies as Tax-Exempt Organizations.
Nonprofit Law Blog: Conversions Between a For-Profit Corporation and Nonprofit Public Benefit Corporation
California allows a for-profit corporation to convert into a nonprofit public benefit corporation and vice versa provided that certain steps are followed for each respective process.
Nonprofit Law Blog: Converting a For-Profit into a Nonprofit
Explains that deciding to convert a corporation to a nonprofit requires consideration of several factors, including the loss of ownership, potential restructuring of activities and purpose, and the future use of the organization's assets.
Requirements for Exemption
The IRS lists 501(c) tax-exempt entities other than 501(c)(3) organizations and explains requirements for exemption.
Types of Tax-Exempt Organizations
The Online Compendium of Federal and State Regulations for U.S. Nonprofit Organizations offers a "Tax-Exempt Organization Reference Chart".