Nonprofit Limited Liability Act in Tennessee
The Nonprofit Limited Liability Company Act is legislation passed in the state of Tennessee in 2001. According to section 48-101-702 of the act, a nonprofit corporation is a limited liability company that is not considered a taxable entity for the purposes of federal income tax. A nonprofit corporation may be based in Tennessee, or may be from another state in the U.S. or a foreign country that registers in Tennessee for the purposes of carrying out its activities in the state.
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Organization
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If you want to register your LLC as a nonprofit company, you must file articles giving details of the organization of the company with the office of the secretary of state. The articles that you file must contain a prominent declaration that the company is a nonprofit LLC, and in every other respect, the application for registration must comply with the requirements set out in the Tennessee Limited Liability Company Act. An LLC must consist of one or more members, and members can be corporations as well as individuals. If a nonprofit organization registered in another state or another country wants to conduct its operations in Tennessee, it may do so by being a member of a nonprofit LLC registered in Tennessee. A nonprofit LLC can only have one nonprofit corporation as a member.
Annual Filings
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A nonprofit corporation that is a member of a nonprofit LLC is not considered to be an entity for the purposes of excise tax and franchise tax purposes. Section 48-101-706 of the act states that a nonprofit LLC must be considered as a separate entity from its sole, nonprofit corporation member for the purposes of state and local taxes. This means that the nonprofit LLC must still file annual returns with the office of the secretary of state. Provided that the LLC files returns consistent with its status as a nonprofit operation, there will be no state or local tax liability.
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Subsidiary Non Profit Corporation
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If your nonprofit organization contains a nonprofit subsidiary corporation that is incorporated in Tennessee, you can convert the nonprofit corporation to a nonprofit LLC. The board of directors of the subsidiary nonprofit corporation must approve the terms and conditions of the conversion, as must the board of directors of the parent nonprofit corporation. Once the boards of directors have granted their approval, you can file articles of conversion with the secretary of state. The articles must contain a statement saying that the nonprofit corporation was converted to a nonprofit LLC, the name and main address of the former nonprofit corporation. The conversion is effective when the articles are filed with the secretary of state or at any time with 90 days of filing, if this is specified in the articles.
Effects of Conversion
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If you do convert a subsidiary nonprofit corporation to nonprofit LLC status, the effects of the conversion on the new entity are set out in section 48-101-708 of the act. All property owned by the former corporation remains the property of the newly created nonprofit LLC. Any obligations of the former corporation are transferred to the new company, including debt liabilities, and any actions against the former nonprofit corporation continue against the new company. The parent nonprofit corporation's ownership is transferred to membership of the newly formed nonprofit LLC.
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