What’s the difference between a nonprofit and an LLC?
Member Guest Post with David Pischke of Tolsun Books
Many of us creators have thought about making our dreams official and starting a business. But the big question always seems to be: will I make enough money?
If you don’t want money to be the primary goal of your business, a non-profit could be the best answer for you. It has certain benefits, like the ability to apply for grants and avoid taxes. But there are also several challenges to running a non-profit (and you still need money to operate).
In order to cut through the confusion and get down to the important details of such a big choice, we asked Network Member and Tolsun Books Chief Operating Officer, David Pischke, to share his insights.
Tolsun Books is a non-profit small press. Officially, they’re registered as Tolsun Publishing Inc., but Tolsun Books is their go-to handle online.
David Pischke not only gave us some words of wisdom about forming this non-profit, he ALSO made this COOL INFOGRAPHIC.
Is your mission to help the community? Or do you want to indulge in unfettered capitalism?
How to decide between a Non-Profit and a LLC
The best way to know is to consider, before you set up your business, the most likely way you’re going to get paid. What will your main revenue streams be, and how reliable will they be?
Are you going to make money creating and selling products that people actually want (be honest!)? If that’s the case, start an LLC.
Are you going to make money selling tickets to a performance/festival/workshop that is going to include other artists from the community and which could be a draw for grants and donations? Are you going to have a collaborative team of people putting art out into the world? Start a nonprofit.
Notice the word “collaborative.” A non-profit requires a board and a focus on community. Are you super-difficult to work with and want to do everything your way? Be honest with yourself. If you’re the “my way or the highway” type, save yourself (and everyone else) some grief, and start an LLC.
Even if you are starting a business that creates a product, like a record label or a small press, decide whether your product most benefits consumers or the musicians/writers and artists who create that product, as well as the artistic souls of your customers. If your focus is on the art, and not necessarily meeting market needs, start a non-profit.
The pros and cons of a nonprofit
Pro: More options for revenue
There’s many more revenue streams available for nonprofits. You can apply for grants and ask people for donations, as well as sell your products. Grants and donation opportunities are much more limited for LLC’s.
Con: More regulations
Those revenue streams come with more rules and regulations. Because you are tax-exempt, you’ll have to do a lot of reporting to state and federal authorities. You have to keep extra records and make sure you don’t break any of the non-profit rules. Having legal counsel right out of the gate will help with this.
Pro: Protection from risk
Because the non-profit is its own entity, rather than legally your property, you are protected from legal backlash from the company’s choices. You don’t have to take on the non-profit’s debts, nor are you culpable financially if the non-profit is sued.
Con or Pro: Shared decision making
A non-profit is a team effort. While one person alone could run an LLC, a non-profit requires a board of decisionmakers. You’ll also be working closely with many artists and creators, in order to put on events, make products, or win grants.
Don’t act fast
It’s difficult, and potentially costly, to try to switch corporate structures after you’re up and running, so it’s an important decision that shouldn’t be made in haste.
A non-profit is very difficult to dissolve, as well. If you start one, you can’t easily walk away from it. And if you DO decide to walk away, you won’t get to keep any of the money, products, or assets the company may have.
Take your time to consider… are you ready to work in a collaborative environment that won’t make you, personally, any profit? Or do you want to own the business, and the risk that comes with it?
Pro tip: You can register your business as a nonprofit in your state and still have 27 months to file your federal paperwork!
Any questions about forming a non-profit? Comment below and we’ll help! Or if the question is too hard for us we’ll tell you where to find a lawyer to ask because we are not legal experts!
More About Tolsun Books
From the Tolsun Books Website:
“We are a 501(c)(3) non-profit organization based out of Flagstaff, Arizona.
We publish daring, energetic books that use separate parts to construct a whole: poetry, short stories, comics poetry, hybrids, photo stories, flash memoir, and more. We treasure creativity, and so we may not know we love something until we see it: Art, like the jackalope, cannot be constrained by classification or form.”
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Use the code MAKEGOOD for 20% off in the Tolsun Book Shop.
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