Are huge legal problems in my future?

[Chris Gleo]

Hey everyone!

So I’ve set up a company that sells goods and gives 100% of profits to charity. The company is owned by a board consisting of my close friends and is set up to pay me a reasonable salary... My latest marketing campaign has generated a ton of interest from people who want to donate, but I currently do not accept donations. So...

1. Can I claim to be a “not for profit LLC” without applying for tax exempt status?
2. Can the company accept donations (gifts) and use a portion of those funds to cover my salary or other expenses?
3. Is there any impending legal disasters in my not so distant future?

It should be noted that the cause I’m supporting does not necessarily have an established non-profit I can refer people too

Thanks!

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Vigilante]

Hey everyone!

So I’ve set up a company that sells goods and gives 100% of profits to charity. The company is owned by a board consisting of my close friends and is set up to pay me a reasonable salary... My latest marketing campaign has generated a ton of interest from people who want to donate, but I currently do not accept donations. So...

1. Can I claim to be a “not for profit LLC” without applying for tax exempt status?
2. Can the company accept donations (gifts) and use a portion of those funds to cover my salary or other expenses?
3. Is there any impending legal disasters in my not so distant future?

It should be noted that the cause I’m supporting does not necessarily have an established non-profit I can refer people too

Thanks!

What you are asking for is tantamount to legal advice which The Forum does not advise or endorse. You need to seek the advice of a competent legal attorney. So many things wrong with what you said, including the fact that you're not donating 100% of the profits if you're planning on taking a salary. Get some proficient legal guidance before you get yourself in serious trouble.

 

[Chris Gleo]

What you are asking for is tantamount to legal advice which The Forum does not advise or endorse. You need to seek the advice of a competent legal attorney. So many things wrong with what you said, including the fact that you're not donating 100% of the profits if you're planning on taking a salary. Get some proficient legal guidance before you get yourself in serious trouble.

My salary is expensed before profits are calculated. Dozens of companies advertise “all profits to charity” and still allow for corporate salaries. Newman’s Own is a fair example although their structure is a bit different...

That said, your point is taken and I will look elsewhere for advice.

 

[Vigilante]

My salary is expensed before profits are calculated. Dozens of companies advertise “all profits to charity” and still allow for corporate salaries. Newman’s Own is a fair example although their structure is a bit different...

That said, your point is taken and I will look elsewhere for advice.

Them :
Newman's Own is a food company founded by actor Paul Newman and author A.E. Hotchner in 1982. The company gives 100% of the after-tax profits from the sale of its products to Newman's Own Foundation, a private non-profit foundation which in turn gives the money to various educational and charitable organizations.

Newman's is a FOR PROFIT company. They then donate what ever is left over to a separate 501(c)(3) that he set up. The for profit company is what is called a FEEDER company --- they are a for profit entity and then they feed the non-profit from the net, net, net profits of the feeder company.

You :
So I’ve set up a company that sells goods and gives 100% of profits to charity.

Understand the difference. Gross profit is defined by
Revenue/Retail Price Paid by Consumer
minus
Selling costs
minus
Cost of Goods Sold=
Gross Profit

When you state "all profits" that would be Gross Profits.

What you mean is NET profit, or profit net of expenses, or after tax profits like Newman describes above. That's a huge difference.

You may think I am splitting hairs, but that is EXACTLY what could land you a civil fine or a prison term depending on whom ever calls you on it. You can't advertise "gives 100% of profits to charity" and then not. You look at it as a mis-statement, but the FCC and your state attorney general would not see it the same way.

You don't give all of the profits to charity. You give a percentage of the proceeds to charity, or net, net profit net of expenses to charity.

If you're not a 501(c)(3) you're not a not for profit LLC. You're a for-profit company that donates to charity. Even your corporation structure would suggest as such. That's OK, that's the way Newmans does it.

The company can accept donations but donations to a for-profit company are not tax exempt.

Your legal adviser may tell you the best way to do this is the right way - set up a non-profit that the for-profit can feed.

Good luck. Don't let this stop you from doing good and changing the world. Look at it as a chance to gain mastery over a new area of learning for you.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Chris Gleo]

Them :
Newman's Own is a food company founded by actor Paul Newman and author A.E. Hotchner in 1982. The company gives 100% of the after-tax profits from the sale of its products to Newman's Own Foundation, a private non-profit foundation which in turn gives the money to various educational and charitable organizations.

Newman's is a FOR PROFIT company. They then donate what ever is left over to a separate 501(c)(3) that he set up. The for profit company is what is called a FEEDER company --- they are a for profit entity and then they feed the non-profit from the net, net, net profits of the feeder company.

You :
So I’ve set up a company that sells goods and gives 100% of profits to charity.

Understand the difference. Gross profit is defined by
Revenue/Retail Price Paid by Consumer
minus
Selling costs
minus
Cost of Goods Sold=
Gross Profit

When you state "all profits" that would be Gross Profits.

What you mean is NET profit, or profit net of expenses, or after tax profits like Newman describes above. That's a huge difference.

You may think I am splitting hairs, but that is EXACTLY what could land you a civil fine or a prison term depending on whom ever calls you on it. You can't advertise "gives 100% of profits to charity" and then not. You look at it as a mis-statement, but the FCC and your state attorney general would not see it the same way.

You don't give all of the profits to charity. You give a percentage of the proceeds to charity, or net, net profit net of expenses to charity.

If you're not a 501(c)(3) you're not a not for profit LLC. You're a for-profit company that donates to charity. Even your corporation structure would suggest as such. That's OK, that's the way Newmans does it.

The company can accept donations but donations to a for-profit company are not tax exempt.

Your legal adviser may tell you the best way to do this is the right way - set up a non-profit that the for-profit can feed.

Good luck. Don't let this stop you from doing good and changing the world. Look at it as a chance to gain mastery over a new area of learning for you.

Really appreciate the reply! I’m fresh out of college and college does NOT teach you everything... so I’m excited to learn more. I’ve already contacted a tax professional who I intend to meet with soon. The company is currently set up as a for profit LLC and net profits are given to charity.
Interestingly the labels on Newman’s own products just read “100% of profits to charity”... they don’t specify net profits or gross. My website specifies “100% of net profits” but not all my advertising does. I guess that’s something I should adjust ASAP. The last thing I need is jail time

 

[Mattie]

Really appreciate the reply! I’m fresh out of college and college does NOT teach you everything... so I’m excited to learn more. I’ve already contacted a tax professional who I intend to meet with soon. The company is currently set up as a for profit LLC and net profits are given to charity.
Interestingly the labels on Newman’s own products just read “100% of profits to charity”... they don’t specify net profits or gross. My website specifies “100% of net profits” but not all my advertising does. I guess that’s something I should adjust ASAP. The last thing I need is jail time

I think it depends on what program and college you go too, because I was trained in non-profits and we had to go through the whole process for term projects. I also took a Grant Writing program through my Internship. I think if you're wanting to do non-profit, you better learn about Grant Writing, Fundraisers, and Philanthropy, because there is a lot of paper work involved, restrictions, re-tape, and you have to show reports and even your board of directors needs to be professional to a certain extent. They don't usually fool around with this stuff. Everything is held accountable.

 

[Kak]

Hey everyone!

So I’ve set up a company that sells goods and gives 100% of profits to charity. The company is owned by a board consisting of my close friends and is set up to pay me a reasonable salary... My latest marketing campaign has generated a ton of interest from people who want to donate, but I currently do not accept donations. So...

1. Can I claim to be a “not for profit LLC” without applying for tax exempt status?
2. Can the company accept donations (gifts) and use a portion of those funds to cover my salary or other expenses?
3. Is there any impending legal disasters in my not so distant future?

It should be noted that the cause I’m supporting does not necessarily have an established non-profit I can refer people too

Thanks!

You should just file 501c3 and be a nonprofit... You currently fit the criteria. The biggest difference between a true nonprofit and a corporation are what happens to the money that would normally be distributed.

To answer your questions:
1. No don't do that. But you can explain, honestly, your philanthropic efforts all you want.

2. Yes you can, but you will be taxed on the donations and the donations can't be tax exempt for the donors either UNLESS you are a 501. The first half of this equation wouldn't matter if you actually did give it ALL away to an outside 501, but you don't.

3. Doubtful under either circumstance as long as you get your accounting right.

I am not a lawyer and this isn't legal opinion. By no means should you take any of my advice. Just part of the discussions you should have with qualified legal advice.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Cat Lady]

Sounds like you should file to be a 501c3 - you fit the definition and you wouldn't pay taxes except payroll taxes and sales tax, and then people can make donations to you. If you have questions about c3, feel free to PM me, I spent my whole career in non-profits (mostly ones that also operate stores/fee-for-service) and have founded a few. Happy to help, though IANAL.