It always seemed so simple! You either had ‘nonprofits’ (501c(3)) - charitable organizations that were focused on the mission and ‘doing good’. Or…you had ‘for-profit’ businesses whose sole purpose were to maximize profits for owners and stakeholders. There was no middle ground whereby organizations could both generate revenue and do social good.

The traditional charitable organizations could pictorially be displayed as two distinct ‘silos’ like this:

Traditional Division of Nonprofit and For-profit

Traditional Organizational Structure: Charity and Business

“Pure” Charitable 501c3 Organization with funding 100% from donations & grants

The typical inference of a ‘charitable’ organization has morphed into the tax status of the organization (501c3)). This is how most people have come to think of a ‘do-social-good’ organization. We think of our traditional nonprofit that is funded strictly via grants and individual donations. There is little funding diversification and there are no revenues from additional sources such as sponsorships, fees or earned income. It is important to note that this ‘pure’ type of nonprofit is less common as charities seek to expand their funding sources.

Business with the mission to maximize profits

The common perception of a for-profit business is that they are 100% focused on profit maximization. In this context, these are publicly held corporations with stakeholders. These companies have the legal obligation to maximize stakeholder value. A publicly held corporation that is 100% focused on profits serves social good by providing a product or service in demand. Hence, it serves their customers and provides jobs for their employees.

But times have changed!

These days, if an individual wants to make a difference, give back, or support a cause, there are many organizations that do social good and generate revenue. In today’s world, we do not give much thought as to how organizations obtain their financial funding or how they serve their community. Many organizations in our hometown are not just traditional ‘nonprofit’ or ‘for-profit’ - they are a blend of the two.

Below is a linear diagram that depicts the various types of organizations - including some new legal entity organizations. The diagram ranges from 100% ‘pure’ nonprofit on the left (#1) to 100% profit-focused business on the right (#5).

Today’s “Do-Social-Good” Organizations

1

Traditional Charity:

Nonprofit; 100% mission for “social good”; donations and grant funding
2

Priority on mission, then revenues

501c(3) Organizations that generate revenues; Social Entrepreneurs; Benefit Corporations (“B” Corps), Low Profit Limited Liability (“L3C”) Companies; Hybrid Organizations with priorities on mission and then revenues
3

50/50

Equal focus on mission and revenue
4

Priority on profit, then social mission

Privately owned businesses (LLC, C & S Corp, Sole Proprietor, Partnerships); Hybrid Organizations with priorities of profits and then social mission
5

Traditional Business

FOR profit; 100% purpose is to maximize profits

Today’s Wide Range of “Doing Good” Organizations

From the above diagram, there are two new legislated types of ‘do-good’ organizations between the traditional 501c3 nonprofit (#1) and the for-profit business (#5). Today’s charitable entities - those businesses doing social good - are varied. These entities may incorporate a blend of traditional nonprofit and for-profit businesses.

To simplify, below is a short list of the types of firms that have a ‘double-bottom’ line focus; a dual mission to generate revenue and do social good.

  • Benefit Corporation: There are different types of Benefit Corporations that are determined by each state’s legislature (not all states have Benefit Corporations but they should!). These Benefit Corporations serve a dual bottom line. Currently, 34 states have passed Benefit Corporation legislation (click here for a state-by-state status). Benefit Corporations serve both to generate revenue and serve a specific social cause. To learn more about Benefit Corporations, click here.
  • Low Profit Limited Liability (“L3C”) Company: The Low-Profit Limited Liability Company is also a state legislated for-profit business entity. It is the traditional Limited Liability Company format that encompasses a social mission as part of it’s charter. It is a type of social enterprise that has a double bottom line mission to make a profit and do social good. According to the Americans for Community Development legislation has been passed in eight states with legislation pending in 27 other states.
  • The Hybrids: It is important to recognize that a ‘double bottom line’ firm does not have to be a specific legal entity. The hybrid may be a legal nonprofit (501c3) organization that generates revenues as some percentage of total funding or, they may be a business that generates profits as well as serve a cause or the community for social good. The blend of mission vs. revenue generation can vary.
    • Nonprofit Hybrid Examples: A typical example is a university who received federal and state funding (grants) but also generates fees in the form of college tuition. Another example we are all familiar with is Goodwill. Goodwill turns around and sells their donated goods in their stores, thus generating revenues and providing jobs for their employees.
    • For-Profit Hybrid Example: A typical example would be a hometown, privately owned business or professional that serves his clients or customers and also gives back to the community with in-kind donations of goods or services, sponsorships, or provides other financial support.

In summary, today’s charitable organization landscape has changed and continues to evolve. Most legal entities including the newer Benefit Corporations and Low-Profit Limited Liability Companies have a blended approach to both doing social good and generating financial revenue. Understanding an organization’s legal structure - as a nonprofit or for-profit business - requires a detailed look and clear understanding of how the company blends the dual missions.

 

©2018 Aspire to Give®. All Rights Reserved. Greg Doepke is a Chartered Advisor in Philanthropy® and a Certified Financial Planner®. Greg serves on the Board of Directors for the International Association for Advisors in Philanthropy and as the Philanthropist in Residence at Auburn University’s Cary Center for the Advancement of Philanthropy and Nonprofit Studies. As the founder of Aspire to Give® Greg educates and equips individuals, families, business owners, and foundations with both traditional and leading-edge philanthropic tools and techniques for smart, meaningful, and impactful giving. You can contact Greg at This email address is being protected from spambots. You need JavaScript enabled to view it.

Start Your Giving Journey Today

If you are interested in learning more about Aspire to Give®'s pursuit to advance philanthropy through donor-focused education, social innovation, collaboration, and advocacy, please reach out to Greg Doepke: Greg@AspiretoGive.com

Disclosure: Greg Doepke is the founder and principal of Aspire to Give®, a social enterprise that donates 100% of profits to charity.
The thoughts and opinions expressed in this blog are not representative of the views of ACG Advisory Services, Inc. or the Actuarial Consulting Group, Inc. of Midlothian, Virginia. Each client and prospective client agrees, as a condition of precedent to his/her/its access to Aspire to Give®’s website to release and hold harmless ACG Advisory Services, Inc. and Actuarial Consulting Group, Inc., their officers, directors, owners, employees, and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized advice from Aspire to Give® or Gregory W. Doepke.