If you create a Web 2.0 start-up related to charities, which your legal form should be your company?
- For profit organization
- Non-profit organization
"The recent Red Cross scandal is a reminder that charitable nonprofit organizations sometimes act poorly. Meanwhile, many for-profit commercial organizations try to do good—by helping poor coffee growers, or providing hurricane relief, or supporting schools. Yet the good-doing nonprofits enjoy tax benefits denied to the good-doing for-profits."
from The Faculty Blog ( Blog of the Law School the University of Chicago)
Why should nonprofit enjoy tax benefits denied to the good-doing for profits? "
"That's the question posed by Eric Posner and Anup Malani of the University of Chicago Law School in a working paper published in September (you can download it here). Posner and Malani suggest that the exclusive tax benefits available to nonprofit corporations are both unfair and inefficient. In response, they recommend that the same benefits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.
According to the authors, there are three primary arguments used to support the special status of the not-for-profit sector, none of which they believe justifies the exclusive tax incentives:
The public goods theory
The public goods theory suggests that charitable tax benefits encourage citizens to support firms that create public goods, displacing the need for government or tax revenues to do the same job less efficiently.
The authors claim that commercial firms can also provide public goods and services, and would do so more effectively and efficiently in some cases.
The agency theory
The agency theory holds that the nonprofit form removes the lure and distortion of profit-seeking from the pursuit of social good -- especially in cases where the donors or consumers cannot evaluate the quality of the goods or services provided.
The authors believe this problem could be resolved through contract and management structure.
The altruism theory
Finally, the altruism theory suggests that the nonprofit form encourages altruistic individuals to undertake activities that will benefit others. Assuming that for-profit enterprise will ultimately value profit over quality or quantity of production, the nonprofit creates a space for those who value the latter over the former.
The authors dispute this point entirely, suggesting altruism and commitment to quality can be expressed by entrepreneurs in any organizational form.
...
The proposition was provocative enough to make The New York Times Magazine's list of ''big ideas'' for 2006 (available here, if you're a subscriber). And it nudges an already bubbling conversation about the flexibility and future of the nonprofit corporate form.[...]"
From the blog The Artful Manager
This article uses full paragraphs from the following articles:
Interesting link: Marginal Revolution: for profit charities?
Download Full Article (pdf) from Chicago University Here.
