Nonprofit businesses play important roles in the communities where they function, combining elements of business strategy and management with the mission of fulfilling a public need. If you own a nonprofit business and can't make it succeed or simply feel that it's time to move on, you can't sell it the way you could sell a traditional business. However, you still have several sale options available.
Selling a nonprofit business is fundamentally different from selling a conventional business because of the special privileges that nonprofits enjoy. In particular, nonprofits have special federal and state tax exemptions. This means that both the organization's directors and the general public have stakes in a nonprofit's assets. Selling a nonprofit may also remove an essential service that members of the community have come to rely on, which complicates the ethics of the sale process even further.
Several different types of organizations may step in to buy a nonprofit business. They include other nonprofits, which can make the purchase to expand their operations or use the nonprofit's assets to strengthen their fundraising, outreach, recruitment and general operations. Conventional for-profit businesses may also buy nonprofits, operating them as independent, nonprofit organizations or assuming them under the for-profit business and using their assets to make money.
Each state has its own regulations for selling a nonprofit business. The process typically involves the state's courts and an overview of the nonprofit's assets, its status in the community and the impact of the proposed sale. This process can take many months to complete. It includes court review of information such as endowments, which donors may only have given under the condition that the nonprofit remain a nonprofit for a certain length of time. The Internal Revenue Service monitors the sale of nonprofits that seek to retain their nonprofit status, ensuring that the money they bring in won't benefit any single individual. The sale process for a nonprofit requires both the owner and prospective buyer to be patient and remain committed to the transaction.
Transitioning Your Nonprofit
To avoid the lengthy court process of selling a nonprofit directly, you can pursue an alternative method by first transitioning your nonprofit into a for-profit business. State laws regulate this process as well and require the forfeiture of tax exemptions, which may make the nonprofit a less appealing target for buyers. However, once your nonprofit reestablishes itself as a conventional business it will be much easier to sell to an interested business or individual buyer.
- CNN Money; Nonprofit Biz Sellers: Prepare for Long Wait; Ryan Derousseau; January 2008
- Internal Revenue Service (IRS). "Publication 557," Page 3. Accessed Aug. 26, 2020.
- National Center for Charitable Statistics. "The Nonprofit Sector in Brief." Accessed Aug. 26, 2020.
- Internal Revenue Service (IRS). "Publication 526: Charitable Contributions," Page 3. Accessed Aug. 26, 2020.
- Internal Revenue Service (IRS). "Form 1023 and 1023-EZ: Amount of User Fee." Accessed Aug. 26, 2020.
- Harvard Business Review. "Should Your Business Be Nonprofit or For-Profit?" Accessed Aug. 26, 2020.