Streetsmart Financial Basics for Nonprofit Managers

Chapter 7Beyond the C3: Alternate Corporate Structures

Although the majority of nonprofit public charities are single corporate structures, a good many of the large nonprofits are actually composed of multiple corporations. Universities and hospitals, for instance, often use multiple corporate structures for a variety of purposes. Even small organizations sometimes find it necessary to create one or more entities for reasons ranging from regulatory compliance to risk management to brand management.

Parallel to this trend has been a respectable growth in interest relating to alternative structures for nonprofits. The increased interest in social enterprise has spawned some of this activity, and a general interest in alternatives to the standard 501(c)(3) has also helped. General growth in the sector has led to various real-time experiments around multicorporate structures, especially in the last decade. This chapter will touch on a handful of the most common new or alternate structures that nonprofits can use.

We'll first approach the subject starting with the basics, especially those with financial implications. As we explained in an earlier chapter, a corporation is simply a legal and financial fiction that encourages—and prevents—selected behaviors. Sometimes it is desirable to have a second corporation as part of the overall structure of an entity. This may happen if the second corporation is intended to operate in a different state or with a different purpose. For instance, ...