A friend called the other day with a Big Idea to Do Good to ask if she should develop it as a for profit or a non-profit. That's not only a really good question to ask at the outset of any venture, it's also a more complex one than you might think - especially these days.
Why these days? Well, as you may be aware, the boundary between for profit and non profit is becoming more porous every day. First, there are the C-Corps who spin-off foundations and/or nonprofit arms to do good (Ben and Jerry's, for instance did this) - or who simply use their marketing departments as the aegis. There are also the C-Corps whose missions are socially conscious from the outset, or like Tom's that's an example of both. Then there is the growing world of social entrepreneurs, who start up projects to do good using the traditional for profit structures: LLC (Do Well. Do Good., for example), S-Corps, etc. And then, within the last few years, there are the new corporate forms such as the low profit, limited liability company (L3C) and B-Corp that are formalizing the hybridization of for profit and non.
All of these new forms and variations, even though creating more complexity, are, in my mind, good news. Why? Because they signal a growing understanding among us that doing good is not something that should be done as an afterthought or on the side, as occasional volunteer work or church activity. No. That way of thinking is dying. We now realize that we can earn our living (even a good one!) and do good at the same time - they can work hand-in-glove.
And not only can we do this, we should and must. If the reach of technology with its 24/7 stream of information has meant anything, it's meant an expanded awareness of the enormity of world issues begging for solution. From the environment to food supply, to human health and education, to poverty and social injustice, there is business to be done here. And more and more people are stepping up to take part. As a result, more ways are emerging to structure this new kind of business that does good as its mission, with a wider range of choices for start-ups.
So, how does one begin to answer the question: under what structure should I develop my Big Idea? First off, thinking of the range of possibilities in terms of a continuum can be helpful. With one end being the "pure" nonprofit and the other being the "pure" for profit, like this:
Why these days? Well, as you may be aware, the boundary between for profit and non profit is becoming more porous every day. First, there are the C-Corps who spin-off foundations and/or nonprofit arms to do good (Ben and Jerry's, for instance did this) - or who simply use their marketing departments as the aegis. There are also the C-Corps whose missions are socially conscious from the outset, or like Tom's that's an example of both. Then there is the growing world of social entrepreneurs, who start up projects to do good using the traditional for profit structures: LLC (Do Well. Do Good., for example), S-Corps, etc. And then, within the last few years, there are the new corporate forms such as the low profit, limited liability company (L3C) and B-Corp that are formalizing the hybridization of for profit and non.
All of these new forms and variations, even though creating more complexity, are, in my mind, good news. Why? Because they signal a growing understanding among us that doing good is not something that should be done as an afterthought or on the side, as occasional volunteer work or church activity. No. That way of thinking is dying. We now realize that we can earn our living (even a good one!) and do good at the same time - they can work hand-in-glove.
And not only can we do this, we should and must. If the reach of technology with its 24/7 stream of information has meant anything, it's meant an expanded awareness of the enormity of world issues begging for solution. From the environment to food supply, to human health and education, to poverty and social injustice, there is business to be done here. And more and more people are stepping up to take part. As a result, more ways are emerging to structure this new kind of business that does good as its mission, with a wider range of choices for start-ups.
So, how does one begin to answer the question: under what structure should I develop my Big Idea? First off, thinking of the range of possibilities in terms of a continuum can be helpful. With one end being the "pure" nonprofit and the other being the "pure" for profit, like this:
The 501(c)3 end of the spectrum of choices represents the most altruistic of missions, with the highest level of public involvement and scrutiny, as well as the biggest benefit of tax deductible donations. The other end is where the C-Corp is, with its profit motive as primary and its leaders both responsible for decisions and benefitting financially. This spectrum should not be interpreted as one of good to bad or even less money to more, but rather as a reflection of the overarching purposes of the range of corporate structures - there are, of course, plenty of nonprofit organizations with large budgets, just as there are plenty of C-Corps with small ones.
Next, ask yourself some basic questions - such as:
1) Why am I considering a nonprofit? What benefits do I imagine will be gained by it?
2) What concerns do I have about forming a nonprofit? What limitations do I imagine will be the result?
3) What uncertainties/unknowns do I have about nonprofits? What do I think I know for certain?
Then answer the same questions about a for profit structure. And with this information, you can start to weigh the benefits of the various options out there for your particular situation. For example, if you like the notion of letting people know that your Big Idea is primarily about doing good in the world, rather than making you a millionaire (which, by the way, is not bad in itself nor is it incompatible with the nonprofit, per se) then you may be leaning more toward the nonprofit side of the equation. But if, at the same time, you are concerned about wrangling a broadly representative, volunteer board in addition to managing your start-up and you don't need donations (in other words, you expect to be able to sell your product/service at a profit), then you might want to take a look at B-Corp and L3C options.
The most important thing is to do your research well in advance of filing for whatever structure you choose. Having to change your incorporation status after the fact just means more paperwork and less time to devote to your Big Idea to Do Good!
For more detailed information on what a 501(c)3 nonprofit organization is about, see Chapter 1 of Nonprofit-KnowHow - take a look here. And thanks to Sarah for raising the question!
Next, ask yourself some basic questions - such as:
1) Why am I considering a nonprofit? What benefits do I imagine will be gained by it?
2) What concerns do I have about forming a nonprofit? What limitations do I imagine will be the result?
3) What uncertainties/unknowns do I have about nonprofits? What do I think I know for certain?
Then answer the same questions about a for profit structure. And with this information, you can start to weigh the benefits of the various options out there for your particular situation. For example, if you like the notion of letting people know that your Big Idea is primarily about doing good in the world, rather than making you a millionaire (which, by the way, is not bad in itself nor is it incompatible with the nonprofit, per se) then you may be leaning more toward the nonprofit side of the equation. But if, at the same time, you are concerned about wrangling a broadly representative, volunteer board in addition to managing your start-up and you don't need donations (in other words, you expect to be able to sell your product/service at a profit), then you might want to take a look at B-Corp and L3C options.
The most important thing is to do your research well in advance of filing for whatever structure you choose. Having to change your incorporation status after the fact just means more paperwork and less time to devote to your Big Idea to Do Good!
For more detailed information on what a 501(c)3 nonprofit organization is about, see Chapter 1 of Nonprofit-KnowHow - take a look here. And thanks to Sarah for raising the question!
RSS Feed