LLC vs. Nonprofit

by Richard Morgan; Updated September 26, 2017
Nonprofit organizations often attract civic-minded individuals.

The differences between a limited liability corporation (LLC) and a nonprofit organization can be seen primarily in the composition of management as well as distribution of any profits. A nonprofit organization simply means that any money that's made cannot be shared among the workers but has to be put back into the organization.

Profits

By their very nature, nonprofits aren't in business to make money: They usually serve a social need, and any money that might be made is put back into the business. This doesn’t mean that nonprofit organizations can’t make a lot of money, however — it simply means that the money made has to go back into the organization, allowing it to grow. LLCs, however, are allowed to grow and make a profit. If a business is designed as a moneymaking opportunity, it's probably best to designate it as an LLC.

Control

Control is an issue with LLCs versus nonprofit organizations. The LLC business owner is free to operate the business in any legal manner he sees fit, but the nonprofit is bound by the doctrines that it set forth when it applied for nonprofit status. If a nonprofit decides to stop operating, its assets have to be given to another nonprofit association, while the LLC owner is able to retain any and all assets that the LLC gathered.

Funding

LLCs have the option of raising money for the business however the owner wishes; there are no restrictions. If an LLC needs money, it can go to an investor and offer a percentage of future profits in return for immediate capital. A nonprofit can't do this. Instead, the nonprofit has to rely upon funding and charitable donations. Nonprofits are also able to acquire money from government and private grants.

Protection

Under the current law, LLCs and nonprofits both have the same level of protection from lawsuits. In other words, just as the owner of an LLC can't be held liable for debts that the business might have incurred, neither can the board of directors nor the employees of a nonprofit organization.

Employees

LLCs are in a better position to retain good employees compared to a nonprofit when it comes to paying its employees. On the other hand, because many nonprofits are socially responsible organizations, a nonprofit might be able to attract employees with a greater sense of commitment to the overall mission of the nonprofit.

Photo Credits

  • Jupiterimages/Creatas/Getty Images