Re: Which status--LLC or non-profit? | <– Date –> <– Thread –> |
From: David L. Mandel (75407.2361compuserve.com) | |
Date: 03 Jun 95 20:09:19 EDT |
In reply to Steve of Tucson: Here I go again, a legal relativist ... But don't put the cart before the horse. Get a pretty clear picture of what your development process is going to be, then figure out the most appropriate legal structure. Our case my be a good example: We formed a nonprofit corporation early on because the city, which had put out a request for proposals to develop what eventually became our site, let us know that they wouldn't deal with us unless we formed some sort of legal entity and they suggested a nonprofit. Doing so may have helped us win the site over our competitor (a standard for-profit developer), but only because of the amorphous connotations of nonprofit status. It turned out to be entirely unrealistic for the actual development, because as a condition of accepting our bid, the city then insisted we form a partnership with a builder/developer. The bank that made our construction loan demanded the same thing. So our ultimate development entity, the body that bought the land, signed the contracts and sold the units, was a limited partnership with the builder as general partner and future residents (plus a few outsiders) as limited partners. That worked out fairly well, especially since we drew up the partnership agreement in a way that reserved most control with the limiteds. The nonprofit, by the way, could not achieve tax-exempt status for purposes of soliciting donations from foundations since we the members stood to benefit from its activities. It was formed, therefore, under Sec. 501(c)(4) of the Internal Revenue Code (I think), not 501(c)(3). With better forethought by us and the city, we may have skipped forming the nonprofit; we had to have a tax-exempt conduit to solicit foundations grants (got none anyway). But at the point the city was demanding something, we were not ready to form the partnership. ... Eventually, we turned the nonprofit (River City Cohousing) into an umbrella group to encourage development of other cohousing groups in the area. Surprisingly, despite our project's success, it's been defunct, though a couple efforts are now under way to get something going, and it may yet turn out to be useful. Of course, laws vary widely from state to state; a partnership like ours might make no sense elsewhere. Consult local nonprofit developers and other cohousing groups in your state. But most important: try to anticipate what your organizational needs are going to be and then figure out what legal form is best. In the spirit of cohousing, pay particular attention to the level of control your group's members will have in the develoopment process, as opposed to builders, architects or others with whom you may have to share authority. And whatever form you choose, take care in drafting the documents to reflect your desires.
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Which status--LLC or non-profit? Stephen Farley, June 2 1995
- Re: Which status--LLC or non-profit? David L. Mandel, June 3 1995
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