QUESTION: non-profits with for-profit wings

question / pregunta: 

I'm working on an article about a company District Energy, which is a non-profit that also operates a for-profit energy company called Market Street Energy. How common is the practice of non-profits owning for-profit businesses? How is it done legally? Can the money generated go directly back into the non-profit? Do these for-profit companies operate under any of the restrictions that apply to nonprofits, or are they regulated the same as any other corporation? Any info would be much appreciated.


Answer posted by:
jim miller

Since this is a legal question, we have to be mindful that we cannot provide legal advice. The only sure way to find a definitive answer to this is to retain legal counsel. But this does not prevent us from pointing out a few legal resources, if you wish to do some research on your own, since there is an abundance of free full-text federal, state, and even some local laws online; as well as access to legal news and journals via many public and academic libraries.

If you are near a large academic library, you may be able to get access onsite to legal databases such as Lexis Academic. Limiting to US and Canadian Law Reviews, I get 3 hits in Lexis for the "title of article" search: non profit and for profit. The title search: nonprofit and "for profit" gets 17 hits; "not for profit" and for profit gets 25 hits. (I put quotes in that one because NOT is usually a Boolean operator and tends to confuse database search engines). Law reviews would get you into very detailed legal analysis, with many hundreds of references to actual legal cases and to other articles, reviews, and even books on non-profit law and policies. An example of a book cited is "For-profit enterprise in health care", by the Committee on Implications of for-profit enterprise in health care. Washington, DC: National Academies Press, 1986. If you search the title: For-profit enterprise in health care in Open Worldcat, you can see what libraries closest to your present location have it.

For a more introductory look at this, you might try most public libraries, where you could get access (including remote access if you have a library card) to databases such as Infotrac, or Ebsco's Masterfile Premier. Masterfile gets 29 articles with subject words: non profit and for profit. But Ebsco seems to have more trouble with "non" and "for" - possibly at least "for" is a stop word (ignored in the search), because "for profit seems not to be coming up in many of the subject headings. You will probably need to sift through all 29 hits to get a few useful ones. The search: "not for profit" and "for profit" is even less helpful - the 144 hits appear to be almost all newspaper captions that DON'T have these words!

You can also search the U.S. Code for the actual text of federal law on this, but it might take quite a lot of trial and error to figure out the proper "legalese". For example, the search: 'non profit' and 'for profit' gets 12 sections, but it takes quite a bit of looking through the text to find where the search words are - even using CTRL-F (edit, find on page). As in any full-text search, the search words can get subjects that are wildly irrelevant, because the words can be VERY widely separated from each other. The search nonprofit and 'for profit' (nonprofit as a single word) gets many more hits in US Code. Nonprofit and 'for profit' and income gets 64 sections; charitable and income and 'for profit' gets 17, and 'tax exempt' and income and 'for profit' gets 19.

Similarly, most state laws are searchable. Use the format to get to the main State government page, then look for links such as "Laws" or "government", and work your way down to the state law site. In Minnesota laws search, you can change the default "exact phrase" to "all of the words". The search: nonprofit "for profit" income (as in Google, leave out AND) gets 15 hits in Minnesota statutes 2007. "Tax exempt" "for profit" gets 19. But you may find these detailed laws to be even tougher to navigate than the US Code. The search terms are plainly highlighted, but CTRL-F will help you get to them faster. Searching "Minnesota Laws" 2004-2007 for "all words": "tax exempt" income "for profit"gets 5 hits, but there are no titles to guide you into WHICH (if any) of the 5 might be relevant - you have to click on a section number to see the full text.

Interestingly, the issue of "Unauthorized practice of law" can itself be searched. That exact phrase gets 3 hits in Minnesota Statutes 2007, including section 481.02 UNAUTHORIZED PRACTICE OF LAW.

non profit/for profit

it's done all the time. can take many forms. depends on the organization (s) goals.

Please provide references

Please provide references for statements.

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