“Conversion” From a Non-Profit to A For-Profit Corporation

Thursday, June 9, 2011

There is an old saying: "knowledge is power." Sometimes that knowledge comes from digging around to try to find answers to some of the most unique questions. In 27 years of practicing corporate law – non-profit and for-profit – I had never been faced with this question. What do you do if you have a corporation which has been established as a non-profit corporation with LARA in Lansing and has never really been started up to do the things the non-profit was originally intended to do? Can you convert to a for-profit?

My "off-the-cuff" response to the client was that I didn't think so, and that we would probably have to liquidate the non-profit, distribute any assets to a qualified non-profit recipient, and simply start over. But there were some personal and administrative reasons why the client wanted to try to maintain some continuity, so I agreed to do some research.

The Michigan Non-Profit Corporation Act (MCL 450.2101 - 3192), provides, in section 450.2601(2), that a non-profit corporation may amend its articles of incorporation to become a (for-profit) regular business corporation. The Act specifies the form and content of the Amendment and contains a number of restrictions – but the important point is that it can be done.

As always, the proverbial "devil is in the details." If the non-profit was operating and has assets, those assets may not inure to the benefit of any individual and thus, will have to be distributed in accordance with the provisions of the original Articles of Incorporation and By Laws requiring distribution to another qualified non-profit organization. Final Federal Form 990 would also have to be filed.

The conversion is possible and is specifically authorized by Michigan Law and should be considered as an additional planning tool for corporate owners and advisors.



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