Can a Corporation Own a Non Profit
Can a corporation own a non profit business? In the United States, the answer is "no" because no one actually “owns” a nonprofit organization.3 min read
2. About Nonprofit Corporations
3. Management and Accountability of Nonprofits
Updated November 4, 2020:
Can a corporation own a non profit business? In the United States, the answer is "no" because no one actually “owns” a nonprofit organization. Confusion about ownership may stem from the fact that nonprofit corporations exist.
Who Really Owns a Nonprofit?
One of the biggest misconceptions surrounding nonprofits concerns who owns them. No individual or group of people owns a nonprofit. However, the concept can be hard for some to understand since the real answer about ownership is that “no one, yet everyone” “owns” the organization.
Typically, a board of directors oversees a nonprofit, and paid employees work in the organization.
In some instances, a nonprofit can be associated with a for-profit corporation. For example, some members of a nonprofit's board may also serve on the board of directors for the for-profit business. This still isn't ownership, simply common control.
Ownership is the biggest difference between nonprofits and for-profit businesses.
For-profit businesses can distribute earnings to shareholders and employees. They can also be privately owned.
Nonprofit organizations, on the other hand, have no private owners and don't pay dividends or issue stock. If a nonprofit earns a surplus, that money has to be reinvested in the company, not distributed to individuals. A surplus can be used to expand programs, for example.
About Nonprofit Corporations
Nonprofit corporations are the most popular business structure for nonprofits. This differs from typical for-profit corporations or S corps, as those types of corporations have shareholders, or owners.
Nonprofit corporations have no owners; instead, they have stakeholders. Stakeholders aren't owners. Rather, they have a stake in the organization's success. Stakeholders can be members in the nonprofit or simply beneficiaries of its activities. Stakeholders don't personally profit from the business.
Nonprofit corporations are designed to carry out a purpose that serves the public good, such as the following:
The people who start a nonprofit don't own it because it's a public entity that actually belongs to the public.
The board of directors in a nonprofit is responsible for running the organization for the stakeholders. If a nonprofit shuts down, or dissolves, the board of directors must distribute all of the organization's assets to another nonprofit after settling all debts.
It's not possible to sell a nonprofit corporation. Any assets that it acquires are to be used to further the organization's mission.
Management and Accountability of Nonprofits
Boards manage many nonprofit organizations, but voting members may manage some as well. When a nonprofit first starts, founders and board members may perform many of the necessary tasks of the organization. As the organization grows, board members may start hiring staff to develop and lead programs. Voting members and/or the board will continue to oversee operations.
Still, none of these groups or individuals has ownership rights in the nonprofit. Although they don't own it, they do have key ethical and legal duties that they can't delegate to others.
It takes a lot of money, time, and effort to start a nonprofit. The founder may have a deep, personal interest in the mission and programs, but he or she still has no ownership rights, despite close ties to the organization.
A founder often serves on the initial board of directors. When a founder serves on the board of directors, he or she has the same responsibilities as other members of the board.
The board looks out for the public's interest in managing the nonprofit by making sure it operates in accordance with its purpose and mission. Members work to protect the organization's tax-exempt status and assets.
Nonprofit organizations are accountable to the following:
- The public-at-large: Nonprofits are meant to serve the public good through various forms, such as charities, religious groups, churches, educational programs, artistic organizations, or scientific organizations.
- State agencies: Nonprofit organizations must comply with certain state regulations, which may require filing certain reports or publicly disclosing certain documents.
- The IRS: In order to keep their tax-exempt status, some nonprofits must adhere to certain rules set forth by the government.
Nonprofits are designed to serve the public, and as such, don't have actual owners. This includes nonprofit corporations, which must meet certain criteria to remain exempt from taxes.
If you need help with nonprofit organizations, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.