Changing your business from nonprofit to for-profit

Business, Money

Setting up your organization as a nonprofit might have been the perfect fit at the time, allowing you to support a particular social cause or community. But situations can change, and you may find that you want your organization to bring in a profit, even while continuing your mission.

It is certainly possible to make money by running a nonprofit. But becoming a for-profit business allows you to accept equity capital and engage in political campaigns, while giving you the additional freedom to earn profit and distribute it to shareholders. In short, it can amplify your reach, allowing you to “do good by doing well.”

Making the switch from a nonprofit to a for-profit business does, however, require a few adjustments.

Get ready

Before you take any action, talk with your financial advisor to learn what the change will mean in terms of taxes, as well as whether you will need to obtain financing as your business changes. These could be significant costs you will want to plan for.

You should also consult an attorney to help you understand the different operating standards the corporation will need to use moving forward, as well as for assistance in restructuring the company’s assets and business strategy to a for-profit status.

Once you have a solid plan and projections, your board of directors must review them and vote to make the change. If the board approves, a notice of intent should be sent to members, employees, and donors, informing them of the planned change.

Do the paperwork

After the board has approved the switch, your company must file a Statement of Nonprofit Conversion with the Internal Revenue Service (IRS). This document explains the reason for the change in status, includes a copy of the liquidation plan, offers a valuation of the company, and provides information about any distribution of assets. In addition, you need to contact your state attorney general’s office to determine what forms and notices you need to file with your state.

Get your for-profit company moving

Notify your employees, donors, and members once the change is official. You must send the IRS your final nonprofit tax return within four months and 15 days after you make the change. All systems are then go, and you can move forward with making a profit.

Looking for more information? The Avvo Business section can help, with details on setting up an LLC, putting together business contracts, and advice from attorneys in your area.