Taxation of business entities.

What is the best legal structure for a new social business / enterprise, which is essentially a combination of a 501(c)(3) and a company?

• Need advice on how to legally structure a new Social Business/Enterprise. The organization will develop and sell a technology service to NGOs and governments around the world to help them implement behavior change programs (health, agriculture, education, etc) better and cheaper than existing solutions. Their fees will be subsidized by the same solution being sold to commercial entities who will pay higher fees.  The technology service will be the first in a series of products and programs that the social business will develop.  All income from this first technology product will be used to grow the social business, increase impact and add more products that help the poor, but no income will be extracted out to benefit anyone. This is a pure social business. Questions: •         How can we legally structure the social business so that we do not pay any taxes on income and all profits go back to the mission of helping people around the world? •         Ideally, we’d like to setup the social business as a 501(c)(3) in order to get tax-deductible donations and get discounts on services. But, what happens if the revenue from commercial customers is greater than revenue from NGOs and government? •         Could commercial sales be included as part of the 501(c)(3) charter to avoid the UBIT or taxation issue? •         Is having a 501(c)(3) with a for-profit taxable subsidiary through which we put all commercial revenue a good solution?

• Answer:

  I would research L3C status for your social business/enterprise. An research brief on L3Cs: http://www.cof.org/files/Documents/Conferences/LegislativeandRegulatory01.pdf And a blog post: http://www.nonprofitlawblog.com/home/2011/08/the-l3c-3-years-later.html