Where can I find information on how to take a company back to a for-profit organization? The company was started as a for-profit for the first 5 years and then turned into a nonprofit for 4 years. The owner wants to sell it but first needs to make it into a for-profit again?
I don’t think you are likely to find much information that you will find satisfactory. Start with the proposition that nonprofits do not have “owners” like a business. Nonprofits have people who control them, but not people who “own” them like a business.
If the company was converted from a for-profit to a nonprofit and obtained Section 501(c)(3) charitable tax exemption, the assets must be used “exclusively” for charitable purposes. Although the physical assets can be sold, the proceeds must continue to be used for charitable purposes. Many charitable hospitals have been sold and the proceeds used to create a foundation to make grants for health and wellness purposes in the community. Other charities have been ‘”converted” to for-profit, but the value of the organization has been put into another charity. Both the Internal Revenue Service and your state Attorney General will have a big interest in seeing that those who run the organization do not obtain private inurement (private profit) from any sale or conversion and that the true value of the organization remains available for charitable use.
If the corporation was converted to a nonprofit which never obtained a tax-exempt status, which is possible but almost never done, it might be possible under your state law for the company to dissolve and distribute assets to its members. This is frequently done with social clubs, for example. But it seems unlikely that the original owner would have converted without obtaining a charitable exemption. Check with a local lawyer for a definitive answer.
With pressure mounting on nonprofits to consider affiliations with other organizations, this workshop is designed to help you better navigate the world of mergers, acquisitions and affiliations. Unlike the corporate world, there are no financial "matchmakers" to help nonprofits identify successful partners for a merger. Learn more in our pre-recorded webinar.
Weekly question and answer
Notice of each full edition
and its free stories
Report on 501(c)(3) electioneering
What our readers say about Nonprofit Issues
Once again you've tackled a tricky question and explained it so we all can understand the issue.--M.V.
Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --R.T.
Have a question?
Other ways to
Talk to the Editor
Next Conference Call:
Wednesday, September 10, 2014
Participate in this bi-monthly telephone seminar conference call and ask your questions directly to Editor Don Kramer.
Access the entire site
($9.95/24 hours, $17.95/3 months).
Full Day Program
A well-received full-day program that covers the current hottest topics in nonprofit law. Qualifies in Pennsylvania for Continuing Education credits.
Don is available for programs and speaking engagements ranging from a one-hour presentation to a full-day primer on nonprofit law. Contact us if you are interested in having him speak at your program.