Non-Profit? For-Profit? Both? Choosing an Entity for a Social Enterprise

Social enterprises involve some social or environmental mission plus a money-making business model. If this describes your new enterprise, you might be considering starting a non-profit organization, but not sure whether you should start a for-profit company instead or in addition. This article will show you which legal entities make sense for what kinds of purposes. My goal is to help you turn your idea into a specific plan of action and help you talk to your lawyer about it. A blog post about legal entities is not a replacement for legal advice.

Let’s first look at an example of how non-profit and for-profit entities can work together for social enterprises. King Lizzy is a store selling urban art in the form of apparel, from a storefront in Chicago’s Humbolt Park neighborhood. It’s actually a project of the non-profit organization, The Stewards Market, whose mission is to build successful communities by creating entrepreneurial and educational opportunities. King Lizzy is a pipeline through which people can travel from an entry-level job where they can learn basic job skills, to a management position, to being trained in all aspects of operating a business, to owning their own businesses. The Stewards Market is a 501(c)(3) tax-exempt organization because its purpose is educational (and possibly charitable). It also operates a revenue-producing business, and its goal is to spin off independent businesses that are the result of empowering its students. Those businesses could be for-profit subsidiaries of the non-profit, or they could be independent corporations or LLCs.

Here’s how to start figuring out what entities you need:

1. Is this a money-making venture for you and your team? If so, skip this whole bit and look at for-profit business entities.

2. Get clear on what your purpose is. Only the purposes listed in section 501(c)(3) of the U.S. tax code are tax-exempt purposes. Those are: “religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition … or for the prevention of cruelty to children or animals[.]” Usually social enterprises have educational and/or charitable purposes. On the other hand, you might just be interested in creating some empowering local economic development. Great! Skip the non-profit and choose a for-profit entity.

3. If you’re still in the non-profit boat, next, clearly describe the activity that makes money. Now, does that activity directly achieve your tax-exempt purpose? For example, operating the King Lizzy store directly accomplishes the goal of providing job training. However, consider a non-profit urban farm with an educational purpose that operates a farm stand to sell its produce, and it also sells jam and soap made by a friendly neighbor, on commission. That other sales activity supports the farm’s purpose by making some extra income for the farm. But selling the jam and soap does not directly educate people about growing produce and eating healthy food.

4. Consider the scale of your different activities. How much money will come from donations? How much from an activity that directly accomplishes your purpose? How much from another business activity?


Non-profit: A business with a charitable or educational purpose, where the business activity directly accomplishes that purpose, where the business won’t make significantly more than you need to operate, and where the founders aren’t in it to make more than a reasonable salary for themselves: this can be a non-profit, tax-exempt organization. If this paragraph describes your enterprise, then organizing as a non-profit, tax-exempt organization gives you the benefit of not having to pay tax on the organization’s income, other state and local tax advantages, and the public perception that your organization serves a worthy mission.

Seeking profit: Any business where you’d like to distribute the profit to yourself, your team, or someone else needs to be a for-profit entity.

Does a significant amount of your income come from a business activity that does not directly accomplish a tax-exempt purpose? If running that business is really your primary or your only planned activity, then there is little reason to set up a non-profit in addition to the for-profit entity you’ll need to use for the business.

Significant charitable or educational activity, plus significant “unrelated” business activity: this is the situation where it makes sense to use both a non-profit and a for-profit entity. The non-profit runs the charitable or educational programs. This allows you to solicit tax-deductible donations for those programs. As soon as you know there will be a significant amount of business activity, where the business activity doesn’t directly achieve a tax-exempt purpose, that business needs to be carried on by a for-profit, taxable entity. And that for-profit business can pay some of its income to the non-profit.

Non-profits are said to add a “halo effect” to the activities associated with them. These days, though, people are starting to recognize that making money can be part of doing good in the world. The Benefit Corporation and the L3C are entities for for-profit businesses that do create some positive buzz and do connect you to a small but growing community of like-minded business-people who will go out of their way to do business with you.

This blog post is meant to give you useful information, but it’s not legal advice because different circumstances can make a big difference in your legal decision-making process. When I recommend you get help from a lawyer:

Just before you start to operate. This could be when you have some programs planned and you’re seeking donations to pay for them, or when you start to conduct a business, and especially when discussions with a potential business partner start to get past the theoretical stage. You can incorporate or form your own LLC, if you want, but you should get help from a lawyer to draft bylaws or an LLC operating agreement.

Your lawyer should help you create a short-term and long-term strategy that will take into account how the business might change over time, and how to set up the project to last longer than any one person’s involvement.

If you have a non-profit that will make a significant amount of income from a “related” business activity, get a written opinion from your lawyer that your business activity really is “related.”

If you are setting up both a non-profit and a for-profit, have a lawyer structure the for-profit and the agreements between them in a way that maximizes the tax advantages of the non-profit.


  1. 979457 261538Its truly an excellent and useful piece of information. Im pleased that you just shared this helpful information with us. Please stay us informed like this. Thank you for sharing. 193072

  2. 410713 600698Should you happen to significant fortunate folks forms, referring by natural indicates, additionally you catch the attention of some sort of envy in consideration of those types the other campers surrounding you which have tough times about this subject. awnings 414185

  3. 558260 799476Quite unusual. Is likely to appreciate it for those who add forums or something, site theme . a tones way for your customer to communicate. Nice task.. 924591

  4. Just desire to say your article is as astonishing. The clearness in your publish is simply cool and i could think you are an expert on this subject. Fine with your permission let me to seize your RSS feed to stay updated with coming near near post. Thanks a million and please continue the gratifying work.

  5. 810517 593121You will be able use all sorts of advised attractions with various car treatments. A quantity of sell traditional tools numerous demand families for almost any event for any investment district, or even for a holiday in new york. ???? ??? ?????? ????? 714005

  6. 738047 804049The planet are truly secret by having temperate garden which are typically beautiful, rrncluding a jungle that is surely definitely profligate featuring so a lot of systems by way of example the game courses, golf process and in addition private pools. Hotel reviews 429496

  7. 12752 126733It is actually a good and helpful piece of information. Im glad which you just shared this beneficial info with us. Please maintain us informed like this. Thanks for sharing. 52220

  8. 432455 487615An attention-grabbing dialogue is worth comment. I believe that it is finest to write extra on this topic, it wont be a taboo subject nonetheless typically individuals are not sufficient to speak on such topics. Towards the next. Cheers 41738

  9. 67079 633625Superb read, I just passed this onto a friend who was performing some research on that. And he really bought me lunch since I discovered it for him smile So let me rephrase that: Thank you for lunch! 465025

  10. I absolutely love your blog and find a lot of your post’s to be just what I’m looking for. can you offer guest writers to write content for yourself? I wouldn’t mind producing a post or elaborating on some of the subjects you write related to here. Again, awesome web log!

  11. I am not sure the place you’re getting your info, however great topic. I needs to spend a while studying much more or working out more. Thank you for magnificent info I was looking for this info for my mission.

  12. 848298 977308Today, I went to the beach with my kids. I found a sea shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She placed the shell to her ear and screamed. There was a hermit crab inside and it pinched her ear. She never wants to go back! LoL I know this is completely off topic but I had to tell someone! 774985

  13. 990360 449458Hello! Ive been following your blog for a although now and lastly got the courage to go ahead and give you a shout out from Kingwood Texas! Just wanted to mention keep up the great work! 999197

  14. 91565 619837This is a superb blog, would you be involved in performing an interview about just how you developed it? If so e-mail me! 965629

  15. 490296 899016I dont believe Ive seen all the angles of this subject the way youve pointed them out. Youre a true star, a rock star man. Youve got so considerably to say and know so much about the subject that I believe you ought to just teach a class about it 552568


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.