Using a Nonprofit Corporation versus a Hybrid Form for Social Enterprise
In choosing a form for social enterprise, founders should consider the following:
- If leaning towards one of the new hybrid forms, closely evaluate the state of incorporation due to the variations in the new forms of hybrid entity types being adopted across the U.S.
- Whether revenues from contributions can sustain ongoing operations.
- What will be the source(s) of startup capital? Nonprofit corporations can issue debt, not equity. Hybrid for-profit entities can issue both debt and equity.
- Whether the entity will generate revenue from a trade or business, and whether that revenue will be subject to unrelated business income tax.
- Whether the entity’s purposes would qualify under Section 170(c)(2) and Section 501(c)(3) organizational and operational tests.
- Whether the founder(s)’s personal goals would be better fulfilled by a for-profit entity.