Shareholding in Nonprofits Should Not Be Allowed … NOT!

A basic and fundamental component of nonprofit law prohibits private ownership interest in a nonprofit business. Since a nonprofit operates for the common good and is given tax exemptions, personal financial return is prohibited by law. This law needs to be modified. Granted, much is required for this to happen. However, denying a nonprofit the means to raise capital via shareholder interest keeps this sector from innovation and significant growth.

Nonprofits struggle to secure important capital to build and maintain their business.  This is why most nonprofits operate with a limited vision for the future and more hand-to-mouth.  However, there are ways to allow donors to be more like investors without totally wiping out the purpose, tax exempt component or charitable deduction element of the sector. For example, one idea suggested is to create a “charitable stock instrument” linked to a nonprofit’s charitable outcomes, resulting in a variable charitable deduction for the donor/investor. Returns for share holders can be based on a nonprofit’s outcomes and expressed either in variable tax deductions or in tax credits. The timing of these deductions/credits can also be variable and expedited through a trading marketplace which will create an ongoing revenue stream for nonprofits. As with the for-profit sector a trading infrastructure will develop with appropriate rules, regulation, and oversight to direct this marketplace. The result will be an increase in revenue and funds to assist nonprofit’s in addressing the unmet needs of society for which the sector was created. Additionally added funds will also create innovation and risk-taking in developing programs, a much needed business practice in the sector. 

Connecting a donor’s stock purchase with potential  charitable return will heighten the business operations and effectiveness of nonprofits. The stock holder will be more intimately connected and focused on the performance of the nonprofit in achieving its outcomes. A whole new economic market will also be created adding untold jobs and tax revenues to the economy. It’s time to get serious about the nonprofit business sector and to raise the bar on its efficiency, operations, and outcomes. Providing a means of capital creation through a modified form of stock interest will not hurt the sector but in fact make it better and stronger.

JRR