||Management and Control
||Capital and Loans
||File articles or certificate of incorporation (containing specific info required by IRS) with state and pay filing fee. File application on Form 1023 with IRS for federal and state tax-exempt status unless below gross receipts threshold. Recruit directors, draft bylaws and hold organizational meeting. Take steps to comply with license, tax and employment laws/regs.
||Managed by directors who appoint officers to run day-to-day operations as specified in bylaws. Some nonprofit corporations have members (similar in function to shareholders) who elect directors.
||Members, directors, officers and employees are generally not liable for debts and obligations of the corporation, including for unlawful acts of others involved in the affairs of the corporation. They can be held liable for injuries due to their own misconduct but some states provide limited immunity to such persons and also to volunteers.
||Generally exempt from federal and state taxes if receiving 501(c)(3) exemption. Liable for tax on unrelated business income, and other taxes such as property and sales (unless local and state exemptions apply). Donors can deduct contributions.
||Can accept charitable donations and grants. Eligible for program related investments (PRIs) by foundations. Can borrow money and issue debt instruments but cannot raise capital by issuing stock.
||File articles or certificate of incorporation with state and pay filing fee. Decide on board of directors, draft bylaws, hold organizational meeting and issue stock. Take steps to comply with license, tax and employment laws/regs.
||Managed by directors that are elected by shareholders. Directors appoint officers to run day-to-day operations as specified in bylaws
||Shareholders are generally not liable for debts and obligations of the corporation, including for unlawful acts of others involved in the business. Unless indemnified by the corporation, directors, officers and employees can be held personally liable for injuries caused by their own acts or failures to act.
|| A C Corporation is subject to corporate tax on net income. If net income is paid to shareholders as dividends, the individual shareholders are taxed. If a corporation elects to be a S corporation and meets several criteria, it can receive “pass through” taxation.
||Can raise capital by issuing stock (equity) and by borrowing money through loans or other debt instruments. Corporation may be able to accept PRIs from foundations in the form of loans or equity.
|B Corp (a for-profit corporation with a social mission that is licensed to use the trade name “B Corporation”)
|| See for-profit corporation
||See for-profit corporation. The B Corp designation requires the corporation to incorporate specific socially beneficial performance standards into its governing documents and operating principles, and designate a "benefit director."
|| See for-profit corporation. Directors of B Corps cannot be held personally liable for failing to create public benefits.
|| See for-profit corporation.
||See for-profit corporation. A B Corp should be in a better position to attract PRIs from foundations in the form of loans or equity.
|Limited Liability Company (LLC)
||File articles of organization or certificate of formation with state and pay filing fee. Negotiate and execute operating agreement. Take steps to comply with license, tax and employment laws/regs.
||Flexible structure like a partnership with management responsibilities specified in operating agreement (usually management committee or single manager).
||Same as a corporation.
||Usually not taxed as an entity because most LLCs choose “pass through” treatment whereby the members/owners report profits and losses on personal tax returns. Tax-exempt member/owners treat their share of income as exempt or subject to unrelated business taxable income, depending on the character of the income.
||Can raise capital through contributions by member/owner. Otherwise, same as for-profit corporation.
|L3C (low profit LLC)
||Similar to LLC but must be formed for a charitable or educational purpose. Only permitted in certain states (e.g., IL, LA, MI, ME, NC, UT, VT, WY)
|| See LLC.
|| Same as a corporation.
|| See LLC. Less ax regulation due to social goals.
||Same as for-profit corporation except L3C enabling legislation is written to comply with PRI regs and is thus intended to attract equity or debt investments by foundations.
||No filing requirements unless limited partnership (LP) or limited liability partnership (LLP), but partners should sign partnership agreement. Take steps to comply with name, license, tax and employment laws/regs.
||Partners have equal, full control unless otherwise specified in partnership agreement.
||Partners are personally liable for the debts and obligations of the partnership, including for unlawful acts of other partners and employees. Risk can be limited by creating an LP or LLP.
||Generally not taxed as an entity. Partners report profits and losses on personal tax returns.
||Can raise capital through contributions by partners and by borrowing money through loans or other debt instruments.
| Sole Proprietorship
||No filing requirements. Has no legal existence apart from owner. Take steps to comply with d/b/a name, license, tax and employment laws/regs.
||Owner has full control.
||Owner is liable for all debts and obligations, including for unlawful acts of employees.
||Not taxed as an entity. Owner reports business profits and losses on personal tax return.
|| Owner provides funds for capital investment and owner can borrow money through loans or other debt instruments.