Subsidiary Tandem
How can nonprofit ownership of a for-profit subsidiary create social and financial value?

In the United States, federal and state law permit public charities to operate businesses as wholly-owned for-profit subsidiaries. Read on to learn about how nonprofit control of a for-profit subsidiary plays out along the seven factors, and how this structure might help or hinder pursuit of your goals.

What is it?

In a for-profit subsidiary tandem, a nonprofit organization owns a for-profit company.

When is it relevant?

The choice of a wholly-owned for-profit subsidiary tandem is typically motivated by one of the considerations below: 

  • Taxes: When a nonprofit charity earns revenue from commercial activities that are unrelated to the charity’s purpose, it is taxed on the profits. Because there are limits on how much “unrelated business income” a nonprofit can earn, establishing a corporation as a tax-paying subsidiary of the nonprofit enables the organization to generate earned income without limitations.

  • Liability and donation stewardship: The creation of a taxable, wholly-owned subsidiary of a public charity has been a vehicle used for decades by various exempt organizations as a way of separating any business liability risks from charitable donations.

  • Access to capital: A for-profit subsidiary empowers the social entrepreneur to supplement donor dollars with investment financing and access larger amounts of capital for growth.

For-profit subsidiary tandem structures are complex to establish and manage. Read on to learn about the challenges for-profit subsidiaries must navigate in order to optimize funding, governance, and incentives as well as the other seven factors.


Click on the links below to learn more about each of the seven factors in the Nonprofit structure.

Subsidiary Tandem Mission: In a subsidiary tandem, the board of the nonprofit is responsible for making decisions to anchor the mission of the for-profit subsidiary.

Subsidiary Tandem Earned Revenue: The subsidiary tandem has limitless potential for profit, but it's complicated.

Subsidiary Tandem External Funding: Attracting funding for both sides of a subsidiary tandem are theoretically promising, but practically deceptive.

Subsidiary Tandem Incentives: Creative intrinsic and financial employee rewards packages can attract top talent, but parity can be a problem.

Subsidiary Tandem Scaling Impact: Is the whole greater than the sum of the parts? The jury is still out.

Subsidiary Tandem Governance: Separate governance with intertwined goals adds complexity to subsidiary tandems.

Subsidiary Tandem Costs: Subsidiary tandems double the work, and double the cost.