Angie Rayfield wrote:
Unfortunately, the waters concerning profit vs. nonprofit get muddied a bit
when dealing with multiple states and then the IRS.
I don't think most people would agree with that statement, Angie,
certainly not those familiar with business incorporation.
A business incorporates as a particular type or category of corporation,
and yes, different states may have different definitions and regulations
concerning types of businesses.
However, "nonprofit" categories are separate and distinct from
"for-profit."
This is necessary because laws - both federal and state - including, but
not limited to tax laws, address nonprofits differently. Generally
speaking, a good bit more disclosure is required of nonprofits.
Rootsweb.com, Inc. is "definitely not a non-profit," according to the
California Secretary of State's Documents Filing Office.
There are two choices: for-profit and nonprofit. A corporation is
organized as one or the other.
Information regarding the different categories of corporations in
California are available online at the CA Secty of State's website:
http://www.ss.ca.gov/business/business.htm
Although California makes it easy and goes strictly profit or nonprofit,
under IRS codes there are assorted varities of nonprofit--nonprofit, not for
profit, charitable, etc--and most of them have separate requirements, and
all of them have rather strict rules concerning what can and cannot be done
by the organization.
I'm not sure what you mean by California making it "easy."
It's necessary to separate how an entity is "organized" (in this case is
incorporated) to *do* business from the type of tax-exempt status
(federal or state) for which it may qualify. These are two different
matters, although certainly related.
It would be fair to say that all organizations which operate under IRS
"charitable" [or 501(c)(3)] status ARE organized as nonprofits, because
being a nonprofit is a requirement of obtaining 501(c)(3) status.
It would not be fair to say all nonprofits are 501(c)(3), because this
is but *one* type of tax-exempt status for nonprofits. It is known as
"charitable" status.
The following page on the IRS website may be helpful as it offers more
details on the various IRS tax-exempt codes:
http://www.irs.ustreas.gov/prod/bus_info/eo/eo-types.html
The header "Charitable Organizations" is for 501(c)(3).
An IRS ruling in the last year or so (sorry, I can't remember exactly when)
made life difficult for a lot of groups when it comes to fund-raising.
Simplified, any on-going revenue generating activity can be considered a
business, not a fund-raiser, and different rules apply concerning how the
revenue is taxed, and whether it's a charitable deduction or not.
It sounds as if you are referring to rules concerning "non-related
business revenues," and indeed these rules affect nonprofits operating
under 501(c)(3). However, I'm not clear on how you feel this relates to
any of the above.
A corporation still must be organized as a nonprofit in order to obtain
501(c)(3) status.
If I were Dr. B, or anyone with Rootsweb, I'm sure that would be a concern
with, for instance, the banners. Those aren't a contribution, they're paid
for a certain number of click-throughs. Is the IRS going to consider that
an on-going business, rather than a fund-raiser?
Well, first of all, it would appear moot, because it does not appear the
RootsWeb website is part of a business operating as a nonprofit. So the
regulations concerning ANY tax-exempt status are not an issue.
I am unclear as to whether RootsWeb as we know it is still operating as
a "sole proprietorship" in California, or has begun operating as the
corporation
Rootsweb.com, Inc. -- neither of which is a nonprofit.
It is possible *another* corporation exists under a name other than some
variation of "RootsWeb." Brian has stated his plans to form *two*
corporations, one as a nonprofit for the genealogical websites, the
other for different types of websites such as pets.
I would have thought the name "Rootsweb" would be used for the
nonprofit, since this is the name associated with the genealogical
sites/lists, etc.
Frankly, in light of Brian's statements, I was surprised to learn
Rootsweb.com, Inc. is organized as a for-profit corporation.
I cannot address whether another separate, nonprofit corporation exists
- only that California Secty of State's office can locate no record of
one with a name using "Rootsweb."
The Secty of State's office did say "Rootsweb" was an usual name, and
had no difficulty locating the record of recent qualifying in its office
for
Rootsweb.com, Inc.
My guess would be that by setting up two separate corporations, one
profit &
one some variety of non-profit, it increases the number of ways that money
could be raised. Charitable contributions could go to one, the other would
be conducting the "on-going business" type activities.
I believe this is what Brian stated previously, although he did
*specify* the particular type of nonprofit - he stated he has hired an
attorney who is preparing the application to the IRS for 501(c)(3)
status. In fact, he stated he had retained one law firm, but has since
switched to another, for preparation of the application.
I find this somewhat confusing since
Rootsweb.com, Inc. is organized as
a for-profit, and hence would not qualify under 501(c)(3).
I can only assume there must be another corporation for which the
application is being prepared. I simply do not know what the name of the
other corporation might be, and have asked Brian for that information.
However, it is not necessary under California law (and so far as I know
in any other state) for tax-exempt status to be approved *before*
incorporation as a nonprofit. It is necessary, as part of the
requirement of incorporating as a nonprofit, to state your *intent* to
apply for tax-exempt status, and to specify the type of tax-exempt
status you will seek.
I'm not familiar with California law--is being qualified for incorporation
in California the same as having filed for incorporation?
Not exactly, but I think the answer to what you're asking is,
essentially, "yes."
It is not necessary in the case of
Rootsweb.com, Inc. to file for
"incorporation" in California, because the corporation already exists.
Incorporation was accomplished in another state, in this case Delaware.
California has recognized the corporation and has "qualified" it to do
business in California, by virtue of the incorporation having been
accomplished in Delaware.
This is not unusual. Many businesses seek incorporation in Delaware.
Delaware has a reputation as being a fairly inexpensive and quick state
in which to incorporate.
Sandy