mshilarious
Banned
See, this is why you aren't a lawyer. No offense, you are young and lack experience, but that advice given to a client would get you sued for malpractice.
Don't conflate terms, terminology is *critical* in law. That's why people hire lawyers to draft documents. Nonprofit <> co-op, in any stretch of the imagination. Co-op <> partnership and/or LLC.
If you really want to know what a co-op is, here's a slideshow that doesn't look too bad:
http://www.nsacoop.org/pdf-docs/tax_sessions/Jason Reschly - Principles of Cooperative Taxation.pdf
So you will quickly see that it's a C corporation (learn what that is) that is subject to tax on its earnings not distributed to members via the patronage dividend. That's a complex structure that is ill-advised for your situation, and could result in double taxation (not that you'll be making that much money, but someday you might be advising clients who do).
An alternative structure would be a partnership (or LLC, they have mostly identical treatment under US tax law, but differ in that there must be a general partner (with unlimited personal liability) in a limited partnership, whereas all LLC members enjoy limited liability. This too would be excessively complex for your intended business as you'd have to calculate an annual distribution of excess profits to all of your members (well you don't *have* to, but you said you wanted to), and they would all be taxed on such income on their personal returns. When you start handing out K-1s to all of your HS band chums they will stare at you with a puzzled look of non-understanding.
None of the above structures are "tax-exempt" for federal or state income tax or for state sales taxes. They might be "pass-through" entities, but all of their income will end up taxed somewhere.
A true "not for profit" corporation, often called a "non-profit" or more formally an "exempt organization" has to be organized under specific requirements pursuant to state law and then file for federal nonprofit status, garnering something referred to as a "determination letter" from the IRS. Only corporations organized for certain charitable purposes (and some others) may apply. Substantial disclosures are required on annual tax filings, and transactions with officers & directors are carefully scrutinized for restrictions on self-dealing; that is, running a nonprofit for personal benefit, or stuffing what should be a taxable for-profit business under the guise of a charity. Those are big no-nos and you really don't want to bother with all that trouble.
As for the limitation of personal liability with an LLC structure: any lawyer worth her salt will go to the deepest pocket where they can potentially attach liability. If you are running an LLC record label/recording studio in your dad's house, and you sloppily run cables in a manner that causes a client to trip and injure himself, then:
- your LLC gets sued as the owner of the equipment and the contracting entity with the musician;
- you get sued because it was your personal negligence in laying the cable;
- your dad gets sued because it's his house and you are his minor child.
This is why a good lawyer would recommend not locating a commercial recording studio in a personal residence . . . at least without plenty of liability insurance that specifically covered business use of a home with clients at the residence . . .
Don't conflate terms, terminology is *critical* in law. That's why people hire lawyers to draft documents. Nonprofit <> co-op, in any stretch of the imagination. Co-op <> partnership and/or LLC.
If you really want to know what a co-op is, here's a slideshow that doesn't look too bad:
http://www.nsacoop.org/pdf-docs/tax_sessions/Jason Reschly - Principles of Cooperative Taxation.pdf
So you will quickly see that it's a C corporation (learn what that is) that is subject to tax on its earnings not distributed to members via the patronage dividend. That's a complex structure that is ill-advised for your situation, and could result in double taxation (not that you'll be making that much money, but someday you might be advising clients who do).
An alternative structure would be a partnership (or LLC, they have mostly identical treatment under US tax law, but differ in that there must be a general partner (with unlimited personal liability) in a limited partnership, whereas all LLC members enjoy limited liability. This too would be excessively complex for your intended business as you'd have to calculate an annual distribution of excess profits to all of your members (well you don't *have* to, but you said you wanted to), and they would all be taxed on such income on their personal returns. When you start handing out K-1s to all of your HS band chums they will stare at you with a puzzled look of non-understanding.
None of the above structures are "tax-exempt" for federal or state income tax or for state sales taxes. They might be "pass-through" entities, but all of their income will end up taxed somewhere.
A true "not for profit" corporation, often called a "non-profit" or more formally an "exempt organization" has to be organized under specific requirements pursuant to state law and then file for federal nonprofit status, garnering something referred to as a "determination letter" from the IRS. Only corporations organized for certain charitable purposes (and some others) may apply. Substantial disclosures are required on annual tax filings, and transactions with officers & directors are carefully scrutinized for restrictions on self-dealing; that is, running a nonprofit for personal benefit, or stuffing what should be a taxable for-profit business under the guise of a charity. Those are big no-nos and you really don't want to bother with all that trouble.
As for the limitation of personal liability with an LLC structure: any lawyer worth her salt will go to the deepest pocket where they can potentially attach liability. If you are running an LLC record label/recording studio in your dad's house, and you sloppily run cables in a manner that causes a client to trip and injure himself, then:
- your LLC gets sued as the owner of the equipment and the contracting entity with the musician;
- you get sued because it was your personal negligence in laying the cable;
- your dad gets sued because it's his house and you are his minor child.
This is why a good lawyer would recommend not locating a commercial recording studio in a personal residence . . . at least without plenty of liability insurance that specifically covered business use of a home with clients at the residence . . .
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