A proposal for a new type of charitable-business structure: the donor-investor organization

Abstract

Non-profits redistribute assets in pursuit of a social goal, and for-profits organize assets to generate income and growth. While both organizations face a principal-agent problem, non-profits face unique challenges ensuring that managers adhere to the goals of endowers or donors. Regulations have failed to successfully address the principal-agent problem, and hybrid structures such as Benefit Corporations have profit as one of the objectives. We propose a new type of entity with both a business arm and a charitable arm, with a social purpose as the only objective, committing all profits to the entity’s charitable mission. Investors, both small and large, receive a stream of future tax deductions based on outlays for the organization’s mission, while retaining legal control of the entity’s operations. While not meant to replace all charities, the proposed structure provides a new way for investors, business people and non-profit professionals to work towards a social good.