I received the following question by email:
I have a business idea. I am trying to figure out whether I should set up as an LLC or a non-profit. I want to setup a wildlife preserve while producing organic food near my home. I am concerned about public liability, tax considerations, and a safety net for myself and my family.
This was my response:
Fortunately, for you most non-profits are incorporated as corporations. I am assuming that you would want to receive tax exemptions from the IRS; if so, then your non-profit will need to be incorporated. A corporation achieves all the goals you listed, as does the LLC (mostly). The major difference between an LLC and a nonprofit corporation is that as an “owner” of a non-profit, you are technically holding the funds for the public. Like a trustee holds money for a child. All the donations and in-kinds gifts that you receive belong to the public only. So, you are not as free to use the funds as you would if your business was an LLC. Thus, you will be open to more scrutiny; in fact, even your tax returns (if you have to file them) will be open to the public.
On the other hand, there are many grant and funding opportunities for farming and environmental work. This is a great benefit if setting up your business is expensive.
The choice is yours. I encourage you to talk to your business lawyer about it.
What should you ask your attorney? I suggest:
1- Find a small business attorney. Unless your business grosses $2 million or you have over 20 employees, your business’ legal needs are very unique. You need an attorney that is familiar with those issues and opportunities.
2- Identify your key concerns. (liability, taxes, manageable paperwork) Your key concerns will drive your entity-choice decision.
3- Discuss your start-up capital and cash-flow plans for the business. If you plan to run a loss, then you may use this to lower your tax bill.
4- Discuss your business philosophy. Are you a risk-taker or risk-adverse? You need an attorney whose philosophy matches yours.
5- Discuss billing arrangements. You need predictable, manageable bills. Try to find an attorney who offers fixed fee billing instead of hourly billing; or, find an attorney who will give you a budget prior to beginning your work.
6- Indentify your communication needs. Be realistic with yourself. Will you need to talk to your attorney every 24 hours or do you only want to “talk” with your attorney by email. Whatever communication level you require, find an attorney who can provide that level.
Your idea sounds exciting. I wish you luck.
