Nonprofit-Owned LLCs & 501(c)(3) LLC Formation

Why It Matters

LLCs give nonprofits flexibility - without giving up exemption

Purpose & structure assessment

We map the activity - program, real estate, earned income, or a joint venture - to the right vehicle: a disregarded LLC under the charity, an LLC seeking its own exemption, or a taxable subsidiary.

Formation & charter provisions

We form the Florida LLC (Chapter 605) under your nonprofit corporation (Chapter 617) and draft the articles and operating agreement - including the Notice 2021-56 provisions where the LLC itself must be exempt.

UBIT analysis

We assess whether the activity is an unrelated trade or business (IRC §513), what is excluded as passive income (§512(b)), and whether debt financing pulls income back in (§514) - then structure to manage it.

Governance & control

For joint ventures, we build the control and governance terms that protect exempt status, and we keep intercompany documentation clean between parent and subsidiary.

Compliance handoff

We map Form 990 / 990-T reporting, the §512(a)(6) separate-business (“silo”) computation, state filings, and registered-agent and annual-report deadlines so the structure stays compliant.

Yes, in two ways. Most commonly, a single-member LLC wholly owned by a 501(c)(3) is a “disregarded entity” for federal tax purposes (Treas. Reg. §301.7701-3), so its activities are treated as the charity’s and are covered by the charity’s existing exemption - no separate application needed. Less commonly, an LLC can be recognized as exempt in its own right, but only if it satisfies IRS Notice 2021-56: every member must be a 501(c)(3) organization or a governmental unit, and the articles and operating agreement must contain specific exempt-purpose, asset-dedication, and contingency provisions. An LLC with any individual or for-profit member cannot itself be a 501(c)(3).

Usually not. If your 501(c)(3) is the sole member, the LLC is disregarded and treated as a branch or division of the charity for federal tax purposes (Rev. Rul. 99-5; Treas. Reg. §301.7701-3), so it shares the parent’s exemption without filing its own Form 1023. A separate exemption is generally only relevant when the LLC has multiple members and needs to be recognized as exempt under the Notice 2021-56 standards.

Generally yes. Under IRS Notice 2012-52, a contribution to a U.S. single-member LLC that is wholly owned and controlled by a U.S. 501(c)(3) is treated as a contribution to a branch or division of the charity and is deductible under IRC §170, provided the other §170 requirements are met. We recommend the LLC make clear in acknowledgments that it is a disregarded entity of the parent charity.

Even a tax-exempt organization owes tax on income from a trade or business that is regularly carried on and not substantially related to its exempt purpose - unrelated business income, taxed under IRC §§511-514 and reported on Form 990-T (generally required once gross UBI reaches $1,000). Passive income such as dividends, interest, rents, and royalties is usually excluded (§512(b)), but debt-financed property can pull income back in (§514), and each separate unrelated business must be computed on its own under §512(a)(6). Too much unrelated business inside the charity itself can also threaten its exempt status - which is why we often house that activity in a separate LLC or taxable subsidiary.

Liability and clarity. An LLC isolates the risk of a specific program, property, event, or venture so a problem there does not reach the charity’s other assets. It also keeps title, financing, books, and governance separate, makes joint ventures and real estate cleaner, and gives a natural place to ring-fence unrelated business activity. For a wholly-owned single-member LLC, you get all of that without losing the parent’s tax exemption.

Yes - a charity-and-for-profit joint venture is typically done through an LLC. The key is structuring it so the charity retains the control needed to ensure the venture furthers its exempt purpose; the IRS scrutinizes these arrangements (Rev. Rul. 98-15), and getting control, governance, and the operating agreement right is what protects the charity’s exemption. Income from the venture may also raise unrelated business income questions we plan for in advance.