• Michael Wright

A Church by any other name

I have been asked to help organize a nonprofit as an LLC, LLP or a sole proprietor more times than I can count. While this may seem like a good idea and can be less costly it is simply not possible. A tax exempt (Non-Profit) organization cannot be structured in any way other than to be Incorporated.

We must keep in mind that a church is a 501c3 organization and the IRS states that 501c3’s must have a board of directors. To be organized exclusively for a charitable purpose, the organization must be a corporation (or unincorporated association).(1)

To qualify for exemption under section 501(c)(3), an organization must be organized exclusively for purposes described in that section. This means, among other things, that the organization’s organizing documents must contain certain provisions. The IRS provides sample organizing documents that contain the required provisions.

The organizing documents must limit the organization's purposes to exempt purposes in section 501(c)(3) and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that are not in furtherance of one or more of those purposes. This requirement may be met if the purposes stated in the organizing documents are limited by reference to section 501(c)(3). Organizing documents include the trust instrument, corporate charter, articles of incorporation, articles of association or other written instrument by which the organization is created under state law (1) With that in mind, a LLC or LLP does not have a board of directors. Also, in many if not all states Tax exempt orgs must file Articles of Incorporation. LLC and LLP’s file are called Articles of Organization. Since 501c3 orgs are governed by a board of directors they cannot be an LLC or LLP.

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