A charitable for-profit entity is an organization with a charitable mission but legally organized as a for-profit corporation. Both benefit corporations and Low-profit limited liability companies (L3C) fall under this category. As well as generating a profit, a charitable for-profit entity concentrates on setting a social objective. The business must achieve its social purpose, as well as make a profit, to be successful. There are movements to refine strategies, retuning community-oriented activities based on ROI of Little Investment or Small Capital, Low Risk, yet, higher return (impacts and outcomes; both in social and economic factors) and rebranding nonprofit entities from wholly-dependable funding beneficiary from Governments or public i.e. business organization or individual. previously, we often heard of Nonprofits and community-based organizations, now, For-profits community-based Social Enterprises The case of organizing charitable work under for-profit rules rather than as a traditional charity such as a foundation gained prominence when Google announced its Google.org branch in 2006.[1] Since then, the subject has been under both academic and public debate with U.S. law professor Eric Posner arguing in favor of expanding Charity law to include for-profit charities,[2] while Brian Galle considered the legislative popularity of social enterprises a "race to the bottom among states competing to siphon away federal tax dollars for local businesses."[3]
Legal forms
Benefit corporations
When a company is created under corporate law it is called a benefit corporation. This differs from a ‘B Corp’ which is qualified by B Lab to meet detailed standards for social and environmental performance.
Being a benefit corporation can be very beneficial for the company as it allows them to legally protect their social goals by concentrating on other sectors rather than only considering profit. This allows the business to instead of only concentrating on the shareholders that designated them in the first place, they are able to concentrate on all stakeholders and take into consideration of their interests which can help them solve social and environmental challenges. The demand for corporate accountability is increasing rapidly and is at the highest it has ever been and therefore benefiting corporations can differentiate their company from other leading companies and concentrate on these customers.[4]
There can be many drawbacks of a benefit corporation such as expanded reporting requirements. This provides shareholders of the business with sufficient information to determine whether your business is achieving its purpose and goals. A benefit corporation must produce an annual report for each of its shareholders so that the company can be assessed by a third party. The report will have to include the efforts that have been made in order to achieve a general public benefit and will all have to be stated on the annual report that should be available on the company website.[4]
Differences between charitable for-profit entity and not-for-profit charities
Charities are organizations that are set up to provide help and raise money for those in need.[7] Traditional charities aim to provide a service to the needy with no profits earned for the owners of the organization. All the money that is donated to the organization is used for the purpose of the business and is used to pursue their objectives.[8] A charity is founded to serve a humanitarian or environmental need to the public.[9]
A charitable for-profit entity however differs from this as the organization will aim for a profit whilst still providing similar services as a charity. The for-profit entity may also be directed by a sole proprietor, while a non-profit organization needs a board of directors. Like any other for-profit organization, it will base its accounting on the quarterly income, whereas a non-profit charity will purely focus on the activities carried out.[10]
A large majority of businesses will usually concentrate on the financial benefits of its owners and shareholders when setting up a business.
Similarities between charitable for-profit entity and not-for-profit charities
Although there are many differences between charitable for-profit entities and traditional charities, they do hold some similarities that can be said to be quite major. Both will have a strong vision in what they want from the business overall. Both will therefore have similar strategic plans in order to get the best out of the business regardless of their aims and objectives being different to an extent. For-profit entities and non-profit charities will both strive to meet their objectives that are laid out on their mission statements.[12] They are both given limited funds, so will therefore have to aim to meet their goals with the funds provided.[13]
Further reading
References
- Katie Hafner. Philanthropy Google's Way: Not the Usual New York Times, September 14, 2006, retrieved 10 January 2013^
- The Case for For-Profit Charities Virginia Law Review, 2007^
- Brian Galle. Social Enterprise: Who Needs It. Boston College Law Review, 2013^