Register a .ORG Today

What Is the Difference Between a Non-Profit Organization and an LLC?

A non-profit organization is a company that is established with the intent to provide a charitable, educational, scientific or religious benefit to a community or segment of society. A limited liability company blends the operational flexibility of a partnership with the limited liability protection of a corporation.

Liability

Limited liability is an area where an unincorporated non-profit organization differs from an LLC. Directors and officers of an unincorporated non-profit organization have unlimited liability for the organization's debts and liabilities. This means if the organization gets sued for any reason, the organization's members and directors are personally liable. In this scenario, the director or officer of a non-profit organization may lose his home, car and other personal assets to compensate for the organization's obligations. LLCs, on the other hand, provide the members of the company with personal asset protection against the company's debts and liabilities. LLC members are not at risk of losing their personal assets as a result of running the business.

Profits

A major difference between an LLC and a non-profit organization is that an LLC business is formed and operated with the intent of generating a profit for the members of the company. The profits generated by an LLC belong to the members of the business and may be divided in any manner deemed suitable by the members of the LLC. Non-profit organizations use their profits to ensure that the organization is able to fulfill its stated purpose. The profits of a non-profit organization do not belong to the organization's directors, staff, members or officers. Furthermore, when an LLC terminates its existence, all remaining assets are distributed to the company's members according to their ownership interest in the business. Non-profit organizations differ because assets of a dissolving non-profit organization are distributed to another non-profit organization.

Taxes

There are a number of differences between a non-profit and an LLC when it comes to taxation. Non-profit organizations with a charitable, religious or educational purpose may be federally exempt from paying state or federal income taxes. LLCs may not have to pay taxes as a business, but members of an LLC are required to report their portion of the company's profits and losses on their personal income tax return. This is not required of directors, founders or members of a non-profit organization, since directors and members of a non-profit organization are not allowed to receive ownership distributions from the organization.

Structure

The structure of an LLC will be different from a non-profit organization. LLC management can be assigned to members of the company or non-members may be hired to manage the company. Members of an LLC may oversee the company's day-to-day affairs without jeopardizing their limited liability status. The structure of an incorporated non-profit organization must consist of directors and officers that will govern the organization, whereas an LLC is not required to operate the business in a formal way as far as management structure is concerned.

Fees

The cost to form an LLC differs significantly from the cost to form a non-profit organization. The cost to form an LLC may range anywhere from $50 to $500, as of 2010, according to the Reference for Business website. For example, as of 2010, it costs $500 to file articles of organization for an LLC in Illinois. As of 2010, it costs a non-profit organization $50 to file articles of incorporation with the state of Illinois.


References


Resources


Article Written By Christopher Carter

Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.