Gathering opinions: deciding between LLC and Not-for-Profit

[Grinner Hester]

I went with an LLC to be properly protected and to be able to make a profit.
We have one post house here in town that competes as a non-profit but they hide behind a PBS affiliate station and are frowned upon by everyone in the market.

[Diana Digiano]

Hmm, interesting. Non-profit or not-for-profit does not mean you aren’t allowed to make a profit. It simply means that the profit made, or surplus, cannot not be distributed to owners or shareholders.

Profits have to go back into the company to keep providing the services it is meant to provide. Of course, its management can draw salaries — running a non-profit doesn’t mean you have to be poor and not get paid (of course, any business owner makes a huge mistake if they do not always pay themselves a salary first).

Since my intention is to create educational/historical media, this structure could be right for me. However, I’m curious about your statement about being “properly protected” — how would an LLC be more protected than a non-profit?

[Grinner Hester]

I don’t know that it is. I probably know less than you about non-profits. An LCC protects me from the business should the cieling fall on a client’s melon. 😉 You are right to cnsult with your lawyer on this. As a business person, I assume you’d be putting money back into the business anyway. I’m not sure what the non-profit would gain you. I have to think it has tax benefits… dunno what I’m talkin about there though.

[Diana Digiano]

Having non-profit 501(3)c status does give many tax breaks (mostly tax exemptions except of certain kinds of monies coming in), as well as enables the corp. to apply for grants, and ask for donations which are then deductible for the donor.

[Diana Digiano]

What I really want is to hear from business owners who considered both options, and the reasons why they chose whichever one they did.

[Chris Blair]

Diana DiGiano: Since my intention is to create educational/historical media, this structure could be right for me.

Operating as a non-profit corporation is a slippery slope in my opinion. Most people perceive a non-profit or not-for-profit corporation as one whose aim is to provide altruistic work to aid others.

Places like hospitals, schools, arts organizations, zoos, and the like are all designed to provide enrichment to the people that use their services.

I suppose you could argue that if you’re making strictly educational or historical videos, your business is the same. But as soon as you start competing with “for profit” production companies and agencies for corporate or commercial work, you pretty much break the spirit of being a non or not-for-profit company.

Like Grinner, there was a company in the town I used to live that operated like that. They’d compete with and underbid other companies for corporate work, then cozy up to the large PBS affiliate in town to receive grant supported work. They’d compete with indepedendent filmmakers for grant money to make documentaries, while at the same time producing the latest music video for mid-level country music artists. The owner drove expensive, fancy cars (yes plural), and somehow ended up on the society pages of the newspaper time and again. Then, he somehow ended up being named Production Director at the PBS affiliate, and he CONTINUED to run his business. As production director of the local PBS station, he would award local PBS work to his own company!

It was an ugly situation and let’s just say he was viewed with much disfavor in the production community.

So I think the key is that if you incorporate as non-profit, you need to run your business in the spirit it’s intended and not compete for obviously profit oriented projects with local and regional production companies. In my opinion, you can’t have it both ways. You can’t claim to be a non-profit to qualify for grant supported work (I know, I spent 3 years making independent films and have an Emmy to show for it), then turn around when it suits you and compete for that big commercial job with the large regional hospital (just because they’re non-profit).

I have no idea what your plans are, but from an ethical point of view, you should take one route or the other and be true to the spirit of what being a non-profit is about.

Chris Blair
Magnetic Image, Inc.
Evansville, IN
http://www.videomi.com

[Diana Digiano]

Oh my word. Your idea of not-for-profit production companies is really skewed in the wrong direction. There are so many of them in NYC, where I am. Other production companies that would resent a non-profit production company just doesn’t get it, in my opinion.

“Most people perceive a non-profit or not-for-profit corporation as one whose aim is to provide altruistic work to aid others.”

That’s a charity. Not all not-for-profits are charities. For goodness sakes, think about it – most theater companies are not-for-profit. They’re arts organizations and not charities, but they qualify to be non-profit. For film/video production, making historical/educational media qualifies a company to establish a not-for-profit corporation. A non-profit can also have a separate for-profit arm, which can distribute its profits as any normal profit-making corporation and would pay taxes.

Besides, here in NYC with so many production companies around, I highly doubt anyone is going to even know what my company’s status is, nor resent me for the work I intend to do.

Here are a few websites of not-for-profit production companies in NYS that are pretty much doing what I want to do, to give you an idea of what they’re really about:

https://www.outofthebluefilms.com

https://www.firelightmedia.org/

https://www.aubinpictures.com/

https://www.incite-pictures.com/ (For-profit arm of Cin Qua Non, Inc., a not-for-profit)

https://musefilm.org/

[Grinner Hester]

well, I chose an LLC because the plan was to make a profit. A non profit set up was never a consideration. I didn’t want an INC so an LLC was the logical choice… fo rme.

[Diana Digiano]

Okay, so I guess my original question was not as clear as I thought it was. I don’t want to just hear from people who knew they wanted an LLC from the get-go, or who don’t really know much about the not-for-profit structure.

I was hoping for responses from people who had researched both types of corporate structures, and who know enough about both to be able to discuss the benefits and/or limitations of either one, which is what I meant when I wrote:

“Any of you choose one over the other when you formed your business? What were the pros and cons for you? Finally, what prompted you to choose the type of corporate structure you did?”

So, anyone out here at the Cow who can answer from an informed viewpoint and tell me about the choice they made?

Maybe I should post this question at the “Indie Film & Documentary” forum?

[David Roth weiss]

Diana,

The paperwork required to operate a standalone 501c3 will kill you. Plus, with the economy in the condition it’s in now, non-profits all over are crumbling, because cash is in short supply and people aren’t donating, as most need additional income rather than write-offs. That pretty much negates any benefit for establishing a non-profit entity right there, doesn’t it?

If not, and you are intent upon operating under a non-profit banner, you would do better to find a sponsoring 501c3 entity, and setting up some other form of business entity for yourself. The International Documentary Association (IDA) has an on-going program for member filmmakers who wish to apply that allows them to function under the IDAs’ 501c3. This program allows filmmakers to derive the benefits of a non-profit, but without all the hassle. Of course, there is a fee charged, which is a percentage of all funds donated to the project, and there is still a fair amount of documentation required, and also quarterly accounting, but it’s just a fraction of what is required when compared to establishing a standalone 501c3.

David Roth Weiss
Director/Editor
David Weiss Productions, Inc.
Los Angeles

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