A veteran social entrepreneur provides a guide to those who are thinking through the thorny question of whether to create a nonprofit, a for-profit, or something in between.
Social entrepreneurs who want to start a new venture quickly confront an important question: What type of legal structure should I create? Should I start a traditional nonprofit, a for-profit, or something in between?
This is not a simple question to answer, and it is in some ways becoming more difficult with the proliferation of new legal structures like the B corporation that are intended to allow entrepreneurs to meet financial, social, and environmental bottom lines.
I have started successful and unsuccessful for-profit and nonprofit ventures. My goal in writing this article is to help other social entrepreneurs navigate these waters. I am not, however, a lawyer, and I cannot offer legal advice about creating a venture. Rather, I want to guide you through the issues that you need to consider before you even begin to think about choosing an attorney or getting help structuring your social venture.
The first thing to remember is that the legal structure is simply a tool for accomplishing your goals. Deciding structure first may lock you into a direction that won’t get you where you want to go. It is important to take the time to explore your idea first; then answering the legal structure question will be easier.
Selecting a legal structure is not a question of moral purity. I am structure agnostic: I believe that for-profit and nonprofit structures can both be good vehicles for improving society. You should look seriously at both as part of your toolkit as you’re creating your new social venture.
If personal wealth is a primary motivation and changing the world for the better is a nice benefit but not fundamental, it is pretty clear that you should create a for-profit structure. Being a for-profit typically gives you more flexibility and control, especially if you’re the sole or controlling shareholder. This flexibility gives you the freedom to completely change your business if you spot a new and more lucrative opportunity. And you can still create an ethical and responsible for-profit. If giving away money or providing services at below cost and feeling good about it is your primary or only motivation, then your answer is similarly easy. The U.S. 501(c)(3) nonprofit structure was created to serve this purpose. If your ideas fall somewhere between making lots of money and giving most of it away, there are many ways to structure a venture to accomplish these goals.