nonprofit legal structures

posted by Anne Byrne, Professional-in-Residence, ASU Lodestar Center

Question: I am the interested in starting a public charity, and I want to legally protect my influence and ability to control the affairs of the organization.  How can I do this?

I get this question or some variation of it fairly regularly, and my response is a quite lengthy description on the nature of public charities and the reality that nonprofit organizations of this type do not have owners, by design, making it impossible to legally protect an individual’s control of an organization.

Short answer:  You can’t.

Long answer: Public charities are an IRS designation of organizations that are organized and operated for exempt purposes.  Exempt purposes can span a wide variety of activities intended to improve the common good.  The organized and operated requirements for charitable organizations are very specific, including a prohibition of private benefit, so private ownership is not an option.

posted by  Karina Lungo, Research Aide, ASU Lodestar Center

Welcome to Research Friday! As part of a continuing series, we invite a nonprofit scholar, student, or professional to highlight current research reports or studies and discuss how they can inform and improve day-to-day nonprofit practice.

Do you have passion for social good and want to step out and lead it? Or maybe you have a great idea to create your own business, but want to balance making a profit with creating social impact?

Let’s face it, sometimes we struggle between our commitment to helping society and our personal needs for monetary income. In the finance class of the MNpS program at ASU, we were introduced to a fascinating article by Jim Fruchterman: For Love or Lucre. He suggests that all social entrepreneurs should balance the following four factors when deciding on a legal structure for their venture:

1. Motivation: how strong is our motivation for a social mission vs. making a profit?
2. Market: who are the customers we want to serve, and what is the competition?
3. Capital: how much money do we need to get the venture started and keep it going, and how important are tax considerations?
4. Control: how much control and decision power do we want to have in our enterprise? Are we willing to share it with the community, a board, investors, or partners?