You are here:

Nonprofit Law/Nonprofit/For Profit Co-existing..

Advertisement


Question
QUESTION: Hello,

Last year we started up a For-Profit company that develops lacrosse players and takes them to showcases trying to get them recruited by colleges. We have come across a large number of players that cannot afford this type of service.

My Question is would we be able to open another company Non-Profit to setup a fund for those players who cannot afford to play and would that Non-Profit fund be able to pay the For-Profit company so those players can play.. just want to know the legality of it since we would own both companies. For example a player cannot afford to pay the fee of say $1000 to play summer lacrosse. The Non-Profit awards him a scholarship of $1000.. can the Non-profit pay out the $1000 scholarship to the For profit?

Any help you can give me would be appreciated..

Demian

ANSWER: It appears that the lacrosse players are all youth under the age of 19.  They could form a nonprofit booster organization. My summary of IRS regulations relating to 501c3 booster organizations is at http://goo.gl/RO1ez -- you may be interested to read that.

No one owns a nonprofit and your nonprofit could not control it. See
http://www.irs.gov/pub/irs-tege/eotopica93.pdf starting on pages 11 "Private Facility Owners" which discusses prohibited private benefit and excessive control of the booster organization by such private facility owners.

If you want help with the set-up let me know. I would be willing to work that, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    




---------- FOLLOW-UP ----------

QUESTION: I am still confused... If the booster was setup the players themselves would not be doing the fund raising, the for profit company would be finding people to fund the booster..
a. would the owner of a for profit be allowed to be on the board of non-profit an be able to decide which players would receive the funding and then in turn pay the for profit for the services the layer needs?

Answer
Booster organizations certainly do not need any beneficiaries to solicit contributions.  The owner of the for-profit could solicit donations for the nonprofit.

The owner of a for profit could be on the board as long as there are a majority of board members who are not related to anyone who is working for the for-profit or related by blood or marriage.  But, after you read that IRS internal memo about excessive control by private facility owners, you would see that it would indicate too much control by the for profit entity if the owner of the for-profit would be able to decide which players would receive the funding and then in turn pay the for profit for the services the layer needs.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

Nonprofit Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


Harvey Mechanic

Expertise

I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


©2016 About.com. All rights reserved.