Change from a C-corp to Non-profit

Discussion in 'Tax' started by Pete, May 3, 2005.

  1. Pete

    Pete Guest

    I formed a C-corp last year to launch a new web based
    service. I am still pre-launch and am considering changing
    to a non-profit. Is this a difficult process. I am
    incorporated in Delaware.

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    Pete, May 3, 2005
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  2. "Pete" <> wrote:

    > I formed a C-corp last year to launch a new web based
    > service. I am still pre-launch and am considering changing
    > to a non-profit. Is this a difficult process. I am
    > incorporated in Delaware.


    If you want a nonprofit corporation, you should start all
    over. The articles are different, the bylaws are different.
    And you probably need to get nonprofit status approved both
    by the IRS and the state of incorporation. Even if granted,
    as a small business you're not likely to save much if any
    tax.

    Remember also that when there is a nonprofit corporation,
    you are no longer the owner. The state is the "owner" and
    you have to run the business in what they consider to be a
    commercially reasonable manner.

    Consider an S-corp.

    Stu

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    Stuart A. Bronstein, May 4, 2005
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  3. Pete

    Katie Guest

    Pete wrote:

    > I formed a C-corp last year to launch a new web based
    > service. I am still pre-launch and am considering changing
    > to a non-profit. Is this a difficult process. I am
    > incorporated in Delaware.


    Well, it depends on what you want. If you just want it to
    be a nonprofit for corporation law purposes, you can
    probably reincorporate or do an F reorg into a corporation
    organized under Delaware's not-for-profit statute.
    Generally, what that means is that the articles of
    incorporation and bylaws provide that when the corporation
    is dissolved, its net assets will not inure to the benefit
    of any individual, but will be contributed to a qualified
    charity.

    However, if you want it also to be tax exempt, you will have
    to apply to the IRS (and probably also to your state) for
    that status. How difficult that is depends on what the
    corporation is planning to do, which will determine the
    subsection of IRC Sec. 501(c) that you are applying for.
    Assuming that the purposes of the corporation are
    charitable, educational, or religious, or that it qualifies
    for tax exemption under some other subsection, you can
    probably get the tax exempt status approved retroactively to
    the inception of the corporation. The exemption application
    is a fairly complex process and professional help would be a
    good idea.

    Katie in San Diego

    The foregoing is intended for educational purposes only and
    does not constitute legal or professional advice.

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    Katie, May 4, 2005
    #3
  4. Pete wrote:

    > I formed a C-corp last year to launch a new web based
    > service. I am still pre-launch and am considering changing
    > to a non-profit. Is this a difficult process. I am
    > incorporated in Delaware.


    I expect you didn't do your homework.

    And you haven't told us what kind of "web based service"
    you're talking about. Is it a commercial venture? Or a
    true non profit endeavor?

    I "suspect" the former. tell me I'm wrong?

    ChEAr$,
    Harlan Lunsford, EA n LA

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    Harlan Lunsford, May 4, 2005
    #4
  5. Pete

    Bernard S Guest

    "Pete" <> wrote:

    > I formed a C-corp last year to launch a new web based
    > service. I am still pre-launch and am considering changing
    > to a non-profit. Is this a difficult process. I am
    > incorporated in Delaware.


    You could just not make a profit. Do you me that it should
    be a "not for Profit" organization. If it is to be a "not
    for profit" organization, then your chaarter and bylaws must
    say so. It must also be for qualified purposes and specified
    how assets are to be distributed to other "not for profits"
    or for those qualified purposes. You cannot take such assets
    at your discretion for yourself else you would be violating
    your fiduciary duty. This is, of couse, a vary simple
    explanation and details get complicated.

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    Bernard S, May 4, 2005
    #5
  6. Pete

    TaxSrv Guest

    "Pete" wrote:

    > I formed a C-corp last year to launch a new web based
    > service. I am still pre-launch and am considering
    > changing to a non-profit. Is this a difficult process.
    > I am incorporated in Delaware.


    You will need to incorporate anew, and for IRS approval,
    possibly not in Delaware if you don't live there. See also
    IRS Pub 557 and Form 1023, describing the various exempt
    purposes. What will this org do? If it will exist only in
    cyberspace, it would seem to X out a civic league or social
    club, or most of the allowable categories for that matter.

    Reg,
    Fred F.

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    TaxSrv, May 6, 2005
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