For-Profit or Not-For-Profit: An Outdated Choice

Michael T. Furick
(Georgia Gwinnett College, USA)

Abstract: Worldwide, business is traditionally divided into two classes: for-profit and not-for-profit. While for-profits are focused on generating maximum financial returns for involved stakeholders, not-for-profits prioritize a mission usually involving a social cause. A wall actually exists between these two business types both organizationally and culturally. It is not considered good governance when for-profits become involved in social causes, and conversely it is considered unsavory when non-profits operate profit making businesses. For example, most people would be outraged if the church to which they donate cash on Sundays started using these contributions to open fast food franchises (even if the franchise helped with their “feed the homeless” efforts). This wall exists primarily to simplify taxation: for-profit businesses pay specific tax rates, and not-for-profits either are exempt from taxes or pay reduced rates. Unfortunately, this either/or corporate structure creates large disadvantages for society. Specifically, trillions dollars of assets invested in for-profit businesses cannot easily be tapped to solve social problems because for-profits can only breach the wall and support a social cause indirectly through grants or donations. Simultaneously, not-for-profits struggle to find annual funding and reliable revenue streams in order to keep their organizations liquid and accomplish their mission. This paper examines the current state of this either/or, profit/not-for-profit corporate configuration, discussing hybrid business structures as an alternative. Specifically (1) for-profit businesses focused on a social cause and (2) not-for-profit organizations operating to make a profit.

Key words: social business; L3C; tax code; not for profit

JEL code: K