BusinessWeek offers a useful overview of emerging innovations in corporate structure, the effort to blend for-profit flexibility and responsiveness with nonprofit emphasis on mission over profit. Says author John Tozzi:
Social enterprises…often don’t fit neatly into existing ownership structures. Those that register as nonprofits have trouble tapping private capital to expand, while for-profit companies risk compromising their missions because they must put shareholders’ returns first. But growing interest in hybrid business models has spurred recent efforts at the state level to create new corporate structures that allow entrepreneurs to integrate nonfinancial goals into for-profit businesses.
One of the emerging hybrids is the Low-Profit Limited Liability Corporation (L3C), which I’ve described before. But there are many other combinations already available mixing and mashing existing corporate structures — holding companies for valuable intellectual property generated by nonprofits, wholly-owned for-profit subsidiaries of nonprofits, partnerships, collaborative ventures, corporations with special stock classes to retain mission focus, and the like.
Most of these require lots of lawyers, and a state-by-state analysis of what’s possible (as incorporation is a function of each state, not the Federal government).
Arts and culture organizations often live at the edge of for-profit and nonprofit worlds (earning 20 to 80 percent of their income, and gathering the rest through grants and contributions). As the legal issues get resolved, and new forms of organization emerge, smart arts managers should be watching the evolution — especially those considering starting something new.
An older model that arguably falls under the “hybrid” category is fiscal sponsorship. When structured properly, fiscal sponsorship can be a legal mechanism for a non-exempt entity to raise funds from charitable sources without having to incur the costs and headaches of independent 501(c)(3) status. It’s especially attractive for independent artists, since (again, if things are structured properly) it allows them to retain personal ownership of their intellectual property.
Yeah, what Adam said. There’s so much interest in new “sexy” hybrid models, but for a lot of independent artists fiscal sponsorship allows the ability to accept tax deductible donations while still retaining intellectual property and creative control…and also allows you to change your mind about your corporate structure without “lots of lawyers”.
Especially when combined with other administrative support and incubator type services, I believe fiscal sponsorship is a viable alternative to 501c3.
I like the fiscal sponsorship idea and we use it at the City of Austin Cultural Arts Division to fund inidividual artists and even groups without formal non-profit status. However, are other funders as big on it? Some of the groups we fund want to become non-profits because it will allow them greater access to funding.
Another idea I like, as alluded to in Andrew’s piece, is social entrepreneurship, or a for-profit subsidiary of a non-profit where the profits support the non-profit. I’m not sure how new it is – I first heard about it in 2001 or 2002 and thought it was a great idea. Now I’m all about the mission and actually love the non-profit model, but museums have their gift shops, theatres have the concession stands, etc. and have been doing social entrepreneurship activities for awhile, whether officially named as such or not.