Successful Formation of Nonprofit and Business in Buffalo, New York

Our client approached us to form a nonprofit (501c3) to run their charitable initiative.  They were unsure of whether to simultaneously also form a business to support the nonprofit.  We walked them through a cohesive strategy that will enable both entities to prosper, filed the paperwork on their behalf, and guided them toward launching operations.  Both entities continue to thrive.

Challenge

The difficult part of this case was taking our client’s vision and breaking it into two separate legal entities, one that exists for profit, and another that exists for charitable purposes.  We needed to:

1. Identify the initial Board of Directors, mission statement, and vision for the charity;

2. Identify the products and services to be delivered by the limited liability company (LLC); and

3. Ensure the LLC and 501c3 work together in compliance with NYS and IRS tax requirements, rules, and regulations.

Process:

• Formed a 501c3 for the charitable foundation
• Applied for and secured tax-exempt status from NYS and the IRS
• Drafted Bylaws for the charity and appointed an initial Board of Directors
• Appointed an Advisory Council comprised of initial founders 
• Formed an LLC for the profitable business
• Drafted an Operating Agreement
• Drafted Independent Contractor Agreement for initial staff
• Drafted a contract between the LLC and 501c3 for services

Result:

We successfully created a comprehensive legal framework for the client that allows them to sell their products and services to consumers and generate revenues to donate back to the charity to support the foundation’s mission.  The two-way relationship between the legal entities gave our client the flexibility to ramp up the profitable side of the enterprise when funding is slow and ramp up the charitable side when grants and donors are more widely available.  This infrastructure sets our client up for long-term success and avoids the risk of shutting down the charity if funds are depleted or scarce.