Legal Question in Business Law in California

I am considering starting an architectural/landscape design firm, which focuses on community based/charitable projects. I would need to raise funds to pay for the construction of the projects, as well as to help pay for my expenses and design fees. I will probably also take on other projects which are not charitable in nature (private residences, for example). If I were to start the company as a Sole Proprietorship, would I still be able to raise money for the charitable projects? OR, if I started it as a non-profit, would I be able to use the same company to work on projects that were profitable?


Asked on 2/24/12, 10:03 pm

2 Answers from Attorneys

Sorry to give you the blanket answer, but you need to consult with an attorney and a tax expert. Just because you want to provide services to non-profits doesn't make you a non-profit. You certainly are not going to get near enough information in this forum to properly form your company.

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Answered on 2/25/12, 7:31 am
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

I would stay away from forming any non-profit entity until you can clearly segregate your qualifying activities from those that don't qualify for non-profit treatment. While a non-profit can engage in activities that are "profitable" in that it costs less to conduct the activity than is charged for it, serious restrictions would apply to use of the activity's assets and excess cash flow. Running a non-profit lawfully requires knowledge of the rules and strict observance of them, and is probably incompatible with your other proposed activities.

If you form and operate a for-profit entity, your tax advisor can assist you in deducting expenses you may incur in supporting qualified charities (and in determining which charities are qualified under IRS rules such as "501(c)(3)" to allow deduction of contributions).

Finally, remember that becoming a tax-exempt (charitable) organization is a two-step process. First, you form a California not-for-profit entity, often a corporation. That's relatively easy. Next, you need to apply for and receive non-profit status from the IRS, typically but not always under IR Code 501(c)(3), which is a more difficult, rigorous and time-consuming process than merely forming the entity (corporation, etc.) in the first place.

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Answered on 2/25/12, 11:53 am


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