Strategic Partnerships Through a Legal and Funding Lens Allen Bromberger, Perlman & Perlman LLP Dan Studnicky, Consultant
Strategic Partnerships Through a Legal and
Funding Lens Allen Bromberger, Perlman & Perlman LLP
Dan Studnicky, Consultant
Collaboration and Strategic Combinations between Nonprofit and
For-Profit Entities
Allen R. Bromberger Perlman and Perlman, LLP
The General Rule:
Charities can enter into collaborations, strategic partnerships and joint ventures with for-profit entities if:
The arrangement furthers the charity’s tax-exempt mission, and
The arrangement does not confer impermissible private benefits on the for-profit partner
“Incidental” benefits” are permitted
Types of Arrangements:
Collaborations (little control)
Cause Marketing arrangements (some control) Qualified corporate sponsorships Commercial co-ventures
Partnerships/Joint Ventures (lots of control)
Controlled subsidiaries (total control)
Factors to Consider:
Independent boards
Arm’s-length negotiation
Benefits to the for-profit partner (and its shareholders or customers) are incidental, not substantial
On balance, the arrangement is more beneficial to the charity than to the for-profit business
If the charity controls the for-profit, the activities of the subsidiary may be attributed to the charity
The World of “Social Enterprise”
Business with a social purpose
May be nonprofit, for-profit, or combinations of both
B Corps
Benefit Corporations
Delaware Public Benefit Corporation
L3C’s, social purpose corporations, flexible purpose corporations, and other special purpose entities
Contract Hybrids
Unrelated Business Income Tax (UBIT)
Trade or business
Regularly carried on
Does not contribute to accomplishment of mission in an important way other than by generating revenue
Exceptions for corporate dividends, rents, and royalties But not for debt-financed property or if services are provided
Funding Models: Consolidation, Diversification, and Focus
by Daniel Studnicky
Not For Profit (NFP) sector in the USA in 2010:
2.3 million NFPs including
1.6 million registered with IRS (1/3 are not registered w/ IRS)
1.1 million are 501c3s
employs 13.7 million people (10% of the workforce)
2000 - 2010, NFP employment grew 18%, faster than the U.S. economy
Most nonprofits are small:
Pyramid of NFPs by Operating Revenue
$5 MM+ 6.5%
$500,000 - $4.99 MM 19.2%
Up to $499,999 74.3%
Pyramid of NFPs by Operating Revenue
$10 MM+ 4%
$5 MM - $9.9 MM 2.5%
$1 MM - $4.99 MM 11%
$500,000 - $999,999 8.2%
$100,000 - $499,999 29%
Under $100,000 45.3%
Of those with annual operating revenue less than $100,000:
272,000 lost their tax-exempt status in 2011 due to new IRS regulations requiring NFPs with less than $25,000 revenue to file a new form
More than 50% of these were human service (31.2%) or public / societal benefit groups
Pyramid of NFPs by Expenditures
$10 MM+ 85.6%
$5 MM - $9.9 MM 4.5%
$1 MM - $4.99 MM 6.2%
$500,000 - $999,999 1.5%
$100,000 - $499,999 1.7%
Under $100,000 0.5%
NFP Revenue : Expenditures
$10 MM+ 4%
$5 MM - $9.9 MM 2.5%
$1 MM - $4.99 MM 11%
$500,000 - $999,999 8.2%
$100,000 - $499,999 29%
Under $100,000 45.3%
85.6% $10 MM+
4.5% $5 MM - $9.9 MM
6.2% $1 MM - $4.99 MM
1.5% $500,000 - $999,999
1.7% $100,000 - $499,999
0.5% Under $100,000
Nearly 2/3 of overall revenue comes from private sources:
Private Sources - 63% 50% Fees at hospitals, health clinics, child daycare centers 13% Private contributions (individuals, foundations, corporations)
Government Sources - 32% 24% Government transfers for Medicare and Medicaid 8% Government grants
Other - 5% (includes income from assets)
Where are we? And where do we want to go?
Diversification & Infrastructure
$10 MM+ 4%
$5 MM - $9.9 MM 2.5%
$1 MM - $4.99 MM 11%
$500,000 - $999,999 8.2%
$100,000 - $499,999 29%
Under $100,000 45.3%
High Infrastructure/ More diversified
Low Infrastructure/ Less Diversified