Non-profit vs Not-for-Profit

Started by WeezieC • 15 replies • 3479 views

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WeezieC (Louisiana)
Posts: 16

Posted:

THE QUESTION: Are the two terms interchangeable as they relate to HOAs? My understanding is that the older term, non-profit, has given way in the vernacular to the newer term not-for-profit but non-profit continues to be the prevailing legal description. Here in Louisiana, for instance, the corporate law statute refers to non-profit corporations.

THE BIGGER PICTURE: I am currently serving as president of our HOA. We have a very active membership here in our 55+ community which is great. However, there are some residents who always seem to be second guessing the board. One resident has raised the concern that both terms appear in our governing documents. My short answer is that, "We have bigger fish to fry." I have looked for a better but still short answer on the internet but have not come up with one. Can anyone give me a hand?

This is my first post but I have been visiting since June and have been impressed with the quality of discussions here on HOA Talk. Thought I would start with the easy question and build from there.

KirkW1 (Texas)
Posts: 1,665

Posted:

Quite honestly, I have always assumed that which is correct depends on which state you live in. (Kind of like how you pronounce the word "wash.")

Certainly you are very correct that there are bigger fish to fry then the interchange of the two terms in your documents. In fact, I can't imagine not having bigger fish to fry.

TonyM3 (Arizona)
Posts: 170

Posted:

Quote:

Posted By WeezieC on 08/24/2008 6:28 PM
One resident has raised the concern that both terms appear in our governing documents. My short answer is that, "We have bigger fish to fry."

This resident should be head of the new profitless research committee.

WeezieC (Louisiana)
Posts: 16

Posted:

Thanks for the feedback. Keep an eye out, I might be sharing some of those "fish" real soon!

WeezieC (Louisiana)
Posts: 16

Posted:

Okay here's another one.

THE QUESTION: Could there be ay reasonable circumstance that would call for the HOA to form a new corporation when taking over control of the association and its assets from the developer?

THE BIGGER PICTURE: The same resident wants to know why we didn't set up a new corporation for the HOA instead of continuing with the corporation that had been set up by the developer. The transition continues and has been real ugly - poor communication, poorly written documents AND we live in Louisiana, a state that is very behind in HOA law. In addition, many residents' personal experience with the developer has left them with a high level of distrust for the developer. BUT, the Developer board has dissolved and the residents' board has been elected and is in control of the corporation. I can't imagine any reason to spend the time and effort setting up a new corporation. Am I missing something?

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Please invite the particular resident to read this very lively discussion board. He/she/it would be quite at home among a group that loves to parse every sentence and paragraph in covenants. (Oh, I bet I will get a reaction from that.)

And the answer to your second question:

No.

Now with both of those things said, folks, keep in mind that Louisiana law is based on the Napoleonic Code, not English common law. There are vast differences. Tulane University law school, for instance, teaches two tracks, one for future lawyers who wish to practice outside of the state, and one for those who wish to practice in Louisiana.

SusanW1 (Michigan)
Posts: 5,202

Posted:

WHY would you form a new corporation?

If the name changed, file that paper. Bylaws can be amended. CCRs can be amended. The Board is elected by the members, right?

Yes, it is harder to fix something than start all over fresh; maybe this is the reason she thinks there should have been a clean slate to work with at the turnover.

WeezieC (Louisiana)
Posts: 16

Posted:

Yes, the board is elected by the members.

DwightT (Idaho)
Posts: 664

Posted:

I was always under the impression that the IRS was the only one that really cared about non-profit vs not-for-profit. And since you have to file special paperwork to get the tax-exempt non-profit status, what you call yourself elsewhere doesn't really matter.

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Quote:

Posted By DwightT on 08/25/2008 7:27 AM
I was always under the impression that the IRS was the only one that really cared about non-profit vs not-for-profit. And since you have to file special paperwork to get the tax-exempt non-profit status, what you call yourself elsewhere doesn't really matter.

Dwight, Please see my rant in the thread, "Converting Voluntary to Mandatory"

DwightT (Idaho)
Posts: 664

Posted:

Yeah, I saw it right after I submitted my post. Thought I should come back and clarify since I didn't do a very good job of explaining myself. Instead of saying "you have to file special paperwork", I should have said "an entity has to file special paperwork". I was talking in the much broader general sense. In addition to being on the Board for the "not-for-profit" HOA, I'm also on the Board for a local start-up "non-profit" that just sent in the paperwork for 501-c(3) status.

I agree that an HOA can't get official non-profit status from the IRS, but as I mentioned, as far as I've been able to tell, the IRS is pretty much the only ones who care about which term is used.

MaryA1 (Arizona)
Posts: 7,043

Posted:

WeezieC,

I can't think of one good reason to form a new corp. If the thought is so the members can formulate their own CCRs, that can be accomplished by simply amending them. The CCRs will outline the procedure.

Regarding you question as to whether its "nonprofit" or not-for-profit", you are correct in your assumption that the terms mean the same and are interchangeable. To dwell on this because one gov. doc. refers to one term and another refers to it as the other, is a total waste of time. However, if that is ALL that is of concern in your HOA, I would say be thankful!

CarolF (Florida)
Posts: 435

Posted:

I thought Non-profit is a term used for organizations like the Boy Scouts, where a tax deductable contribution can be made to the organization. Also thought Not-for-profit is the term used for HOA's etc.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Weezie,

Yes, some States seperate the NON PROFITS from the NOT FOR PROFIT as Florida does. Non Profits typically are organizations such as Boy Scouts,Charities , Churches, Food Banks and that type of thing. H.O.A.s can be, Not For Profit because they do file a different type of IRS form. Check with your own documents-- "Articles of Inc" under your corporations legal name which should read-- " XXXXXX Homeowners Association, a NON PROFIT or NOT FOR PROFIT CORP"

WeezieC (Louisiana)
Posts: 16

Posted:

Both Louisiana Corporate Law and Louisiana HOA Act refer to non-profit corporations. The articles of incorporation say that this is a non-profit corporation. The by-laws reference it as XXX HOA, INC., a not-for-profit Louisiana corporation. I'm thinking the by-laws came from a boiler plate (as I've found very similar wording on various HOA sites from many different states) and this is the term used,as Susan pointed out, in other states. We are currently working on a complete revision of the by-laws. So, while it may not merit a separate amendment to correct, we could make the change to the by-laws within the revision so as to be consistent with OUR state language. Thanks, everyone. I think I've gotten to the bottom of it!

Weezie

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By DonnaS on 08/25/2008 9:59 AM

Weezie,

Yes, some States seperate the NON PROFITS from the NOT FOR PROFIT as Florida does. Non Profits typically are organizations such as Boy Scouts,Charities , Churches, Food Banks and that type of thing. H.O.A.s can be, Not For Profit because they do file a different type of IRS form. Check with your own documents-- "Articles of Inc" under your corporations legal name which should read-- " XXXXXX Homeowners Association, a NON PROFIT or NOT FOR PROFIT CORP"

Donna,

The IRS refers to all these orgs as "nonprofits" and they all file a Form 1120 corporation tax return, or the Form 1120H specific to HOAs, or a Form 990 if they have tax-exempt status. The IRS does not differentiate between "nonprofit" and "not-for-profit". In fact, the IRS mostly refers to nonprofits as "tax-exempt" although many are not. The tax form to be used is determined by whether the corp. is tax-exempt or not -- being nonprofit or not-for-profit doesn't enter into it.

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