There are many routes to take when you are a philanthropist running your own private foundation. When it comes to registering your organization, different factors may come into play when deciding if you are going to register it as a Limited Liability Corporation (LLC) or a 501c3. Some well-known philanthropists like McKenzie Bezos and Mark Zuckerberg have chosen not to register as a 501c3 but instead set up their organizations as an LLC foundation.
There are a number of reasons why one may choose to to use one method of setup over the other. Before deciding which type of foundation you would like to use for your philanthropic endeavors, look into the benefits and considerations of both.
Organizations that register for the 501c3 are commonly known as charitable organizations which are used to help the general public. These organizations strictly serve the interests of the public which means no private shareholders or individual’s can benefit from the organization’s earnings. If you are open to the idea of others making charitable contributions to your foundation, you will need to setup a 501c3 foundation, otherwise their gifts will not be considered tax-deductible.
The 501c3 is what many nonprofit organizations strive to adhere to in order to be tax-exempt. This is one of the major benefits of registering as a foundation rather than a LLC Benefits related to tax-exemption include:
Those that choose to register as a private foundation should also keep in mind that there are strict guidelines in order to keep their tax-exempt status. Organizations that are registered as a 501c3 tax-exempt organization need to do the following to maintain their status:
For more requirements that 501c3 organizations must follow, reference the IRS website on exemption requirements. Contact us if you would like more information on filing for 501C3 status.
Limited Liability Company
A limited liability company operates more within a business structure. This means that there are roles like managers or directors within the organization, flexibility due to less rigid requirements, and limited liability meaning members are not held liable for a company’s debts.
This vehicle of charitable giving comes with a number of advantages. Many philanthropists have begun seeing this as an ideal opportunity for gift giving because it offers them much more control and freedom than the traditional route. Benefits of a charitable LLC include:
Overall, the LLC model avoids many of the restrictions that would be in place for a foundation on both state and federal levels making it flexible for philanthropists to engage in activities related to giving and investing that would otherwise be prohibited. However, unlike traditional nonprofit organizations, an LLC does not give you a large tax deduction until the money is donated. In addition, any money the LLC makes is taxable.
Contact us if you would like more information on filing to start a LLC Foundation.
There are alternatives to those who are looking for a blend of both or just looking for another way to give to charitable causes.
Please be advised: Blackbird Philanthropy Advisors is not a law group. We do not offer legal advice. We provide general information to help lead you on a course of action. Blackbird Philanthropy Advisors will provide a referral to you if you wish to have additional assistance on legal matters related to your nonprofit application, entity formation, and bylaws.