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If I were looking to start a nonprofit organization and invested significant personal funds to, e.g., build a required facility is there a reasonable mechanism for me to recoup that investment over time? (but not beyond the initial investment amount)

I'm just looking for a very high level "maybe if you do XYZ" vs "absolutely not short of dodgy accounting".

  • Have you already given the nonprofit money (or something bought with that money), or are you planning to give that money/the thing bought with that money to the nonprofit? The answers will be very different. – Jean Luc Picard Jul 27 '17 at 20:16
  • Also, LSE users (for the most part) are not lawyers. LSE users (all of them) cannot give specific legal (or financial) advice. – Jean Luc Picard Jul 27 '17 at 20:23
  • At this point the nonprofit isn't even formed and this is just one scenario begin considered. I know LSE is not for formal legal advice; the reason for asking was a quick filter to see if it's even in the realm of the reasonable. – ryan0270 Jul 27 '17 at 22:14
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A non-profit organization can choose to rent, lease, or purchase a facility if doing so is consistent with its charter. And in that case it can pay a reasonable market rate. So you could certainly lease or sell something in which you have invested to a non-profit entity, including one that you create.

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The mechanism for doing this is called a "loan". You lend money to the NFP at (or below) commercial interest rates and they pay you back in accordance with the loan contract. You can make the loan interest free which avoids most tax implications. Have a lawyer draw up a contract.

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I've gave or got six digits in the last 10 years. (I also got out).

First, you can't benefit from the nonprofit relationship. That means you can't do a financial transaction in a more beneficial way than the nonprofit could get from anyone else (or that you could get from any other business). For instance, you can't loan it money above market rates. Even if their credit is nil and no one else will loan it money, that's no excuse.

Second, when you are a director or officer, it becomes self-dealing, and a favorable-to-you deal becomes inurement. You need to seek proper counsel on this, or tilt the transaction so it is obviously not in your favor in any way. Zero interest loans are fine.

But it's not really an investment at that point, is it?

Control is a big factor. If you want control, you have to reduce or lose tax deductions. (the good news is, if you don't care about that, you have a lot more freedom; in fact there's a new structure called an LLLC or L3C that's ideal for that). I chose tax deductibility, so I have to put up with 2 strangers on my Board. It sucks.

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