WHY FORM A FOR-PROFIT SUBSIDIARY?
Liability protection. Protecting the assets of the association from liability for the commercial activities is a frequent reason for moving those activities to a for-profit, taxable subsidiary. A commercial endeavor conducted by an association may increase the association’s liability exposure arising from contracts, additional employees or the services or product provided. If the for-profit subsidiary is properly formed and operated, the association can be insulated from those liabilities. Exempt status protection. Concern about an association’s tax-exempt status may arise when it engages in activities which do not contribute importantly to accomplishing the association’s exempt purpose. The association’s tax exemption could be jeopardized if those activities become a substantial part of the association’s activities. However, if those commercial activities are placed into a for-profit subsidiary, they are not attributed to the association. Other benefits. Even though the commercial act
