Can an LLC be a Tax-Exempt 501(c)(3) Charity? and more...


Can an LLC be a Tax-Exempt 501(c)(3) Charity?

Question:  My group is considering forming a tax-exempt charitable organization.  Can the organization be a limited liability company or must it be a nonprofit corporation?

Answer:  It can be an LLC if the LLC is wholly owned by a single exempt organization and the LLC satisfies the 12 conditions described in an IRS paper called “Limited Liability Companies as Exempt Organization Update.” The LLC cannot have individuals or nonexempt organizations as members, and its organizing documents must state a purpose to further the charitable purpose. To learn more about nonprofit corporations see my website called “Nonprofit Corporations & Charitable Organizations.”

The 12 conditions are:

1. The organizational documents must include a specific statement limiting the LLC’s activities to one or more exempt purposes.

2. The organizational language must specify that the LLC is operated exclusively to further the charitable purposes of its members.

3. The organizational language must require that the LLC’s members be section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof (“governmental units or instrumentalities”).

4. The organizational language must prohibit any direct or indirect transfer of any membership interest in the LLC to a transferee other than a section 501(c)(3) organization or governmental unit or instrumentality.

5. The organizational language must state that the LLC, interests in the LLC (other than a membership interest), or its assets may only be availed of or transferred to (whether directly or indirectly) any nonmember other than a section 501(c)(3) organization or governmental unit or instrumentality in exchange for fair market value.

6. The organizational language must guarantee that upon dissolution of the LLC, the assets devoted to the LLC’s charitable purposes will continue to be devoted to charitable purposes.

7. The organizational language must require that any amendments to the LLC’s articles of organization and operating agreement be consistent with section 501(c)(3).

8. The organizational language must prohibit the LLC from merging with, or converting into, a for -profit entity.

9. The organizational language must require that the LLC not distribute any assets to members who cease to be organizations described in section 501(c)(3) or governmental units or instrumentalities.

10. The organizational language must contain an acceptable contingency plan in the event one or more members ceases at any time to be an organization described in section 501(c)(3) or a governmental unit or instrumentality.

11. The organizational language must state that the LLC’s exempt members will expeditiously and vigorously enforce all of their rights in the LLC and will pursue all legal and equitable remedies to protect their interests in the LLC.

12. The LLC must represent that all its organizing document provisions are consistent with state LLC laws, and are enforceable at law and in equity.

The post Can an LLC be a Tax-Exempt 501(c)(3) Charity? appeared first on Arizona Limited Liability Company Law.

    


Arizona LLCs Are Eight Times More Popular Than Arizona Corporations

The Arizona Corporation Commission statistics for its fiscal year ending June 30, 2014, show that people are forming Arizona LLCs eight times more often than Arizona corporations.  Most people forming Arizona corporations do not know that the corporation is an obsolete entity that should be used only in a few select circumstances.

I have formed 4,300+ Arizona limited liability companies since 2001, but less than 100 for profit Arizona corporations.  For the reasons why there is such a big difference, see my article called “LLCs vs. Corporations: Which Type of Arizona Entity Should You Form?”  See also“Contents of Arizona LLC Attorney Richard Keyt’s $597 Complete LLC Package” and Testimonials.

The post Arizona LLCs Are Eight Times More Popular Than Arizona Corporations appeared first on Arizona Limited Liability Company Law.

    

Beware Certificate of Good Standing Rip Off

Today we received in the mail about 30 envelopes from Arizona Business Filing Services.  The envelopes contained an official looking document entitled “2014 Certificate of Good Standing Request Form.” The document suggests that the brand new Arizona LLC should pay ABFS $59.99 to obtain a Certificate of Good Standing for the new LLC.  As soon as I saw the document I knew it was a scam.  Here are some tell tale signs that the letter should be ignored:

  • It starts with IMPORTANT!
  • It states “Your Articles of Formation have been filed with the Secretary of State of Arizona.”  Arizona LLC’s don’t file Articles of Formation with the Secretary of State.  Arizona LLCs file Articles of Organization with the Arizona Corporation Commission.
  • The cost for the Certificate of Good Standing is $59.99, but anybody can obtain a COGS from the Arizona Corporation Commission for $10.

FYI:  We never get a Certificate of Good Standing for LLCs we form.  Your LLC does not need a COGS unless some party like a bank or title insurance company asks for it.  When somebody does demand a COGS the requestor wants a current document, not one obtained two years before the request for the COGS.

The following is the text of a June 9, 2014, press release from the Arizona Corporation Commission concerning the Arizona Business Filing Services COGS letter:

Corporation Commission Warns Business Owners of
False Service Claiming to Offer “Official” Documents

PHOENIX — The Arizona Corporation Commission is warning business owners that an individual or group calling itself “Arizona Business Filing Services” is sending out an official – looking document offering to provide an “Arizona Certificate of Good Standing” for a fee of $59.99. This entity is not affiliated with the Corporation Commission, and business owners do not need to go through any third party to obtain their Certificate. Further, the Commission cannot guarantee the authenticity of such a document.

Valid Certificates of Good Standing can only be obtained directly from the Corporation Commission. The entity status can be viewed online, or a hard – copy certificate of good standing can be obtained by corporations and limited liability companies immediately online for a fee of $45, or by mail, for a fee of $10 (regular processing time).

The Commission has referred this false advertisement to the Attorney General’s office for investigation. I f you have received it, please contact the Arizona Attorney General’s Office in Phoenix at (602) 542-5763, in Tucson at (520) 628-6504, or outside the Phoenix and Tucson metro areas at 1 (800) 352-8431. To file a complaint online, please visit the Attorney General’s web site at www.azag.gov. To file a complaint in person, the Attorney General’s Office has 37 satellite offices throughout Arizona with volunteers available to help. Locations and hours are posted on the Attorney General’s web site .

The post Beware Certificate of Good Standing Rip Off appeared first on Arizona Limited Liability Company Law.

    


New IRS Procedure to Get EIN for an LLC Owned by a Nonresident Alien

Question:  I am a not a U.S. citizen and I live outside the U.S., aka a “nonresident alien.”  I formed a limited liability company in the U.S.  How do I get a federal employer id number (EIN) for my LLC?

Answer:  You can get the EIN one of two ways:  the easy way or the not so easy way. Before January of 2014 we could get an EIN for an LLC we formed for a nonresident alien if the nonresident alien completed and signed an IRS form SS-4 that designated my legal assistant as a third party designee authorized to contact the IRS and get the EIN.  My legal assistant would call the IRS international EIN number, fax the SS-4 to the IRS agent and spend about 45 minutes on the phone, but at the end of the call the IRS would give my legal assistant the EIN.

Beginning in January of 2014, the IRS canned that procedure.  Now a company of any type owned by a nonresident alien gets an EIN for the company by one of the following two methods:

You should be able to get the EIN for the new LLC by using the IRS’
online wizard here:

Easy Way: If the nonresident alien has an IRS issued International Taxpayer Identification Number (ITIN), the nonrsident alien can obtain the EIN in a 5 – 10 minute data entry session using the IRS’ online EIN wizard.  After submitting all of the information the website will display the EIN.  Be sure to print the page with the EIN and keep it in a safe place.

Hard Way:  If the nonresident alien does not have an ITIN then he or she must complete and sign an IRS form SS-4 and fax or mail it to the IRS.  Faxing the SS-4 to the IRS is the better method because the IRS will fax the EIN to the applicant in approximately four business days vs. three to four weeks if the SS-4 is mailed to the IRS.  Prepare, sign and fax the IRS form SS-4 to the IRS at 859-669-5760.

To get a partially completed IRS form SS-4 for an LLC and my detailed instructions on how to fill out the form read my article called “How to Complete IRS Form SS-4.”  Be sure to delete all the text at the bottom of the form in the Third Party Designee Fields and insert your name, phone number and fax number at the bottom of the form.

The post New IRS Procedure to Get EIN for an LLC Owned by a Nonresident Alien appeared first on Arizona Limited Liability Company Law.

    

Warning: Improper Contract Signature May Create Personal Liability

Question:  My LLC is to be the tenant on a real property lease.  The landlord’s lease has a signature block that indicates I will sign the lease as the manager and as a member of the LLC.  The signature block looks like this:

World Wide Widgets, LLC, an Arizona limited liability company

By:_______________________________
Homer Simpson, Manager and Member

If I sign the contract will I be personally liable under the lease in addition to the LLC?

Answer:  Probably.  If you sign the contract with the signature block as indicated above the landlord will claim you signed the contract in your capacity as the manager of the LLC AND in your individual capacity as a member.  A court might agree because that is the strict reading of the text under your signature.  Arizona LLC law says that a member does have have the legal power to sign a contract and bind the Arizona LLC on legal obligations.  Therefore the text “and Member” can only mean the signer is signing in his or her individual capacity.

Bottom Line:  If you do not want to be liable for obligations under a contract, make sure the signature line/block shows that you are signing only on behalf of the LLC.  The signature block should be one of the following:

If the LLC is member managed:

World Wide Widgets, LLC, an Arizona limited liability company

By:_______________________________
Homer Simpson, Member

If the LLC is manager managed:

World Wide Widgets, LLC, an Arizona limited liability company

By:_______________________________
Homer Simpson, Manager

The post Warning: Improper Contract Signature May Create Personal Liability appeared first on Arizona Limited Liability Company Law.

    


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