Legal Question in Business Law in California

Non-profit corporations really don't have "owners" in the sense that the stockholders of a regular business corporation are its owners. Many non-profit corporations do have members, although some don't. Any person can be a member (see Corporations Code section 5056) and the term "person" includes, in addition to natural persons, corporations, associations, companies, business corporations, estates, partnerships and government entities. Corporations Code section 5065.

So, I don't really agree with your premise that there can be no "organization ownership" in a non-profit. Organizations are on an equal footing with natural persons. Neither can be an owner, but either can be a member.

The bright ideas of an individual sucking cash out of a non-profit by leasing property to it and/or working for it have been tried over and over. Any arrangement that tends to transfer money out of a non-profit will be subject to scrutiny and penalized if the terms are found to be unfair to the non-profit or excessively remunerative to the benefitted employee or lessor.

You probably don't want to form a non-profit, but a regular "for-profit" entity that at the end of the year doesn't make any money. It's smart to try creative structures to minimize tax liabilities and maximize asset protection and the liability shield offered by corporations, but there are different ways to structure such an organization and traps for the unwary that could be costly down the line. So, you're on the track, but proceed cautiously.

John Browning

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Further to Mr. Whipple's answer regarding "members." There are special and rather complicated rules, both state and IRS/Federal, governing "member" organizations. It is possible for a non-profit to have "members" if the "members" are not really "members." Your "membership" to the local zoo, or museum, or a place like the Monterey Bay Aquarium is a classic example of a membership that is in name only. You do not acquire any operational rights in the business. A true membership organization non-profit is quite different. Think organizations like REI, California State Auto. Assn., and the Consumers Union. Those organizations are actually run by a board elected by the true members. If you are not careful to make a non-profit that has "members" not really have "members" you may wind up with members for real.

I also need to echo what has been said about setting up a non-profit that you make money from. Your transactions will be closely scrutinized not only for fairness to the non-profit, but also to make sure that the non-profit does not have any money pulled out of it and paid to you that it would not have paid out to completely independent sources for the same goods and services, and they will be scrutinized to make sure that the goods and services provided are truely necessary and productive to the charitable objectives of the organization. In short, it is impossible to legally make any meaningful money by setting up a non-profit, and even legitimate payments from a non-profit to a person who runs the non-profit will be so closely scruitinzed that it is hardly worth it.