Is there any way to take the funds of my non-profit organization convert them into a FOR PROFIT corporation? It seems illegal, but I’d like to join forces with my friend and change my theatre company into a production company that we both can make modest salaries from.
any ideas?
jarbaby
Not sure how to convert a non-profit into a for-profit, although I’me fairly certain it’s posssible. I really just wanted to say that even as a non-profit, you ARE entitled to a salary. Being a non-profit organization doesn’t automatically mean that you have to work for free (or even for a low salary; some non-profits pay extremely well). You should probably consult a lawyer or tax accountant.
Many people get confused about what exactly is a non-profit.
What structure do you have? (board of directors?)
where did the funds come from ? (Donations, investments grants?)
In general you are NOT allowed to utilize grant funds for any other purpose than the operation of the grant proposal.
You got that right. I’m just an actor. The rest of the theatre company decided they were ‘bored’ with keeping the company alive and all of the paperwork was just thrown at me, and I have no idea what’s going on.
We’re a 501c3 if that means anything. Our board of directors is ourselves, Artistic Director, Managing Director, Secretary and Treasurer. Our funds are probably 80% ticket sales 20% private donations. No grants. What I’m essentially wanting to do is dissolve the company completely, but I have no idea what to do with the funds in the bank, and that’s when my friend pitched me on the idea of being producers of some shows she’s heard about.
The plan though was to put up the cash for the show and take a cut of the profits for ourselves, which I know can’t be done with my current set up.
jarbaby
Hi jarbabyj. IAAL, of the Illinois corporate flavor.
Pull out your corporation’s Articles of Incorporation and Bylaws. They will contain a “purposes” clause, as well as a provision on what type of entity gets the corporation’s assets upon dissolution. This will almost certainly be another not-for-profit corporation with a similar purpose or a state agency. If the corporation’s funds are diverted for other uses (“private inurement”), the directors of the corporation could be personally liable (i.e., they could be required to pay up out of their personal checking accounts/assets) for the funds misappropriated. There could also be big-time tax problems (your entity has a IRS Code Section 501©(3) exemption which means it has not been paying taxes on its income). If you don’t properly follow the rules and act like a tax-exempt entity, the corporation could lose that exemption and be liable for tax on its current and prior income. (By the way, that tax exemption is usually valuable–if you ditch the corporation but continue doing shows, realize that taxes will have to be paid by whatever person or entity carries on.)
It is perfectly acceptable for a not-for-profit entity to pay reasonable fees for goods and services, including the services of employees. Inflated salaries, however, fall into the “private inurement” category. Additionally, a not-for-profit theatre company could possibly do a joint production with a for-profit entity as long as the production fit within the purposes of the corporation and the profits were split among the companies on a fair basis.
If you really want to dissolve, you will need to find an eligible entity (per the Articles and Bylaws) to take possession of the corporation’s assets upon dissolution. To take any such action you will need director and possibly member approval (your entity may or may not have members), documented in writing. Filings with the Secretary of State and the IRS are also likely to be required. You really cannot do this safely without a lawyer because of the possibility of personal liability for your directors.
The bottom line is that you cannot convert to a for-profit entity without lots of negative results. The rationale is that the State of Illinois would not have chartered the corporation without the promises made as to the corporation’s purpose, the IRS would not have given the corporation a tax break if it wasn’t serving a described public interest and your donors would never have given you donations if they thought they would not be used as promised.