Can a non-profit have an LLC formed as a subsidiary of the business?

Okay, so if you have a non-profit corporation, can you form an LLC as a subsidiary of that non-profit business?

The general consensus is that yes, a non-profit can buy and sell things, including corporations (LLC, C or S corp) and they can start them as well.

To give you some idea of the use cases for this type of move, we asked our community of experts to give their thoughts on the question as well.

Yes. A non-profit can buy and sell things, including corporations, whether LLC, C, or S corps. They can start them as well. The only real limit to a non-profit 501(c)3 is that it has no shareholders, so no one profits when it does well, other than the employees getting a salary.

My first wildly successful experience with an IPO was with a company that was originally started by a non-profit and went public. By then, there were other shareholders in addition to the non-profit including employees and VCs.

Jeff Osborn

Yes, but the nonprofit has to be careful how the LLC is set up. If it is the sole owner of the LLC, then the LLC would be disregarded for tax purposes, and the nonprofit is the actual taxpayer. If the LLC is engaged in profit-making activities, then the nonprofit has to pay Unrelated Business Tax (UBT), and may also be subject to excise taxes.

Traditionally, nonprofits that wanted to have profit-making activities would create a “drop-down corporation,” which would separate the business activity from the non-profit. After tax income could then be dividended to the shareholder (the nonprofit). You could use an LLC which elects to be taxed as a corporation to get the same effect, but if you create an LLC to pretend to be a corporation, why not just be a corporation?

Ever go to a museum that has a gift shop and snack bar? It’s extremely likely that these activities are carried out by, or outsourced by, a drop-down corporation, in order to isolate these profit-making activities from the museum.

John Gordon

A non-profit can have subsidiaries, including LLCs. However, you should be aware that if the subsidiary is for-profit, you may have to deal with compliance concerns such as those related to keeping a public charity a public charity (501c3s usually are categorized as public charities or private foundations, with the former having more leeway and less restrictions).

James Hsui

Yes. A nonprofit can be a full or part owner in any legal profit making venture. That includes nonprofit participation in LLCs or for-profit corporations. The for-profit entity is run per normal, including taxes and other liabilities and obligations.

Alnisa Allgood

As you can it is very common for a non-profit organisation to start, acquire, and operate subsidiary LLC companies, and those companies can also be for-profit as long as you keep a close eye on the compliance issues.

Hope that helps answer your question!

Cite/Link to This Article

  • Stewart, Suzy. "Can a non-profit have an LLC formed as a subsidiary of the business?". One Brick Court. Accessed on August 2, 2021. https://onebrickcourt.com/can-a-non-profit-have-an-llc-formed-as-a-subsidiary-of-the-business/.

  • Stewart, Suzy. "Can a non-profit have an LLC formed as a subsidiary of the business?". One Brick Court, https://onebrickcourt.com/can-a-non-profit-have-an-llc-formed-as-a-subsidiary-of-the-business/. Accessed 2 August, 2021.

  • Stewart, Suzy. Can a non-profit have an LLC formed as a subsidiary of the business?. One Brick Court. Retrieved from https://onebrickcourt.com/can-a-non-profit-have-an-llc-formed-as-a-subsidiary-of-the-business/.