Hunton Law

Legal Counsel for Nonprofit & Tax-Exempt Organizations

Legal Counsel for Nonprofits, Foundations & Social Enterprises

Nonprofit and For-Profit Hybrids

I am excited about a new project that I am working on with Embrace, an organization working to advance maternal and child health by providing innovative solutions to the world’s most vulnerable populations.  I will be assisting Embrace in my capacity as a volunteer member of Full Circle Fund, which provides strategic planning and capacity building assistance to nonprofits and social enterprises. 

Embrace is committed to making significant improvements in maternal and child health.  Over 20 million low-birth-weight and premature babies are born each year and over 4 million die within their first month of life.  Without access to modern medicine, many babies born in developing countries die of hypothermia, as they are unable to stay warm enough to survive.  Skin to skin contact between mother and infant is the most effective way of regulating the infant’s body temperature, but in practice it can be very difficult for mothers in developing countries to provide this care.  Many mothers are working, traveling to and from work, caring for other children, or suffering from childbirth complications or other trauma related to disaster-relief and post-conflict situations. 

To date there has been no safe or feasible solution to ensuring that these babies survive through the first weeks and months of life.  Embrace has developed a product that meets this critical need: an infant-sized sleeping bag made of a phase change material that maintains a baby’s body temperature for up to 6 hours.  The warmer costs a fraction of the price of existing solutions and functions without a continuous supply of electricity.  Embrace distributes the warmer to populations in need, partnering with other organizations to carry out the distribution and to provide training and education on maternal and child health issues.  Embrace is also working on creating new innovations and technologies that can further advance positive health outcomes in developing countries. 

Embrace’s legal structure is designed to advance its social impact goals.  It consists of two separate legal entities, a 501(c)(3) nonprofit organization and a for-profit entity.  The for-profit has access to more robust capital markets to scale up its commercial operations, which consist of the manufacture, distribution, and research and development of health innovations.  The nonprofit has an ownership interest in the for-profit, giving it a stake in the for-profit’s commercial activities while furthering the nonprofit’s charitable purpose of improving health. 

For-profit and nonprofit hybrids such as Embrace are demonstrating significant positive impact despite occupying two traditionally distinct sectors.  These hybrid models face challenges, particularly with regard to legal status and access to capital.  The good news is that efforts are underway to support the growth of hybrids, including the development of new legal forms (such as the low-profit limited liability company) and financing vehicles (such as social impact investment).  Gradually, these efforts and others will make it easier for entrepreneurs to pursue mission without having to make trade-offs between social and financial goals.