You know that there are several legal structures a business can take. And if you’ve read our most recent Zattattat article, you’re familiar with the most common structures in the US for for-profit companies of all sizes. But of course there are also…
Less-Common Business Structures
(And as you may have guessed, those business structures are the topic of this article!) So let’s start with…
Nonprofits and Not-For-Profits
Despite the connotations implied by their names, both nonprofits and not-for-profits do actually accept, welcome, and in fact need money.
Depending on your definition of “business,” you might describe nonprofits and not-for-profits as “organizations” rather than “businesses.” Nevertheless, they are legal structures that an organization (including one that might at first glance appear to be a for-profit business) can have.
At a conceptual level, a nonprofit is an organization that exists to benefit the community or the environment or some other cause. Examples include most charities, but also organizations that exist to promote basically any goal other than making money for the owners.
Let’s contrast that with…
Not-for-Profits
A not-for-profit (again, conceptually) is an organization that is neither a for-profit nor a nonprofit. If you live in a condo, your homeowners’ association is an example of a not-for-profit that will be familiar to you: it’s neither a for-profit entity that exists to make money, nor is it a charity that exists to further some sort of social cause. It’s basically a private club that exists for the benefit of its members.
But, importantly, despite these being the conceptual explanations for the different types of organization, sometimes real organizations choose a structure that you might not expect! Hospitals in the US, for example, can be for-profit, non-profit, or not-for-profit. (This is different from some countries, where all hospitals are government entities.)
Breaking the fourth wall a little for another example, I (M.G.) took some art classes from a nonprofit that existed for the purpose of furthering the comics industry. This school may have at first glance appeared to be a for-profit, and of course the owner still took a salary so he was still making money by running the organization, but the legal structure of the school was a nonprofit.
So that’s nonprofits and not-for-profits in a nutshell. If neither of those seem quite like the right structure for your organization, you may want to consider…
ESOPs and Co-Ops
ESOPs are for-profit businesses that are owned by their employees. This can be a solid option for small business owners looking to transition to retirement. Instead of selling your business to another individual or to a group of investors, you can sell your stake in your business to your employees.
So ESOP’s are owned by their employees. Co-ops, on the other hand, are owned by their customers.
The most familiar co-ops to the majority of us in the US will be food co-ops: you pay a fee and become a member, you may have to work a few hours per month as a cashier or bagger or whatever, and you are both a customer and an owner of (essentially) a grocery store.
But co-ops don’t have to be food co-ops! A good example of a non-food co-op in the US is the outdoor clothing and equipment store REI, which is a members-owned co-op that sells tents, pants, camp stoves, and more.
Now that we’ve covered nonprofits, not-for-profits, esops, and co-ops, let’s circle back to a special case of for-profit companies:
Certified B-Corps
A Certified B-Corp is a for-profit company.
As such, it will have one of the usual legal structures of a for-profit such as LLC or C-Corp.
But a Certified B-Corp is obligated to consider the impacts of any decision on the environment and the community, as well as on profits for shareholders.
The details of the B-Corp certification continue to evolve, but it’s a special certification that a for-profit company can obtain. It enforces “checks” on the pure for-profit business model, for those organizations that still feel for-profit is a better fit than nonprofit or not-for-profit.
Learn more about Certified B-Corps here.
Weekly Challenge:
Looking to restructure your business? If so, consider some of the structures mentioned in this article!
