Glossary

Tandem

Tandem

Describes the legal structuring of a venture that uses both a for-profit and a non-profit entity to accomplish its goal, and connects those two entities through legal design. Either the nonprofit owns the for-profit, or the nonprofit and the for-profit are allied through contractual agreements. (A for-profit may not own a public charity nonprofit organization.)

External Funding

External Funding

External funding is money available to an organization in addition to its earned revenue. It may be received in the form of an equity investment or charitable contribution. Sources may include private individuals, institutions, venture capital, foundations, and the government.

Incentives

Incentives

Incentives are motivators you can activate to attract and retain people in pursuit of your mission.

Fiscal sponsorship

Fiscal sponsorship

Fiscal sponsorship is used in the nonprofit sector to enable individuals and organizations to start new programs without establishing a new, separate nonprofit organization. Fiscally sponsored projects get their charitable status from their fiscal sponsor, which is responsible for all legal, taxation, and regulatory issues for projects. 

Hybrid

Hybrid

Hybrid is a term used to refer to the entire space of mixing for-profit and charitable purposes in the same entity. It can apply to for-profit companies that seek to create positive social benefit in addition to profitability. It can also apply to non-profit organizations that focus on earned income strategies. 

Arm’s-length rule

Arm’s-length rule

The concept of an arm's length relationship ensures that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. 

B corporations

B corporations

B corporations are for-profit companies that have received a certification issued by B Lab, a global nonprofit organization.  B Corp certification aims to signal to consumers that certified companies meet rigorous standards of social and environmental performance, accountability, and transparency. B corporation is not a legal form or statute. 

Benefit corporations

Benefit corporations

Benefit corporations refers to a statute that requires adherence to an express social purpose, and permits express statement of additional social purposes in the articles of incorporation. Available in different forms in a majority of states, benefit corporations are required to achieve a “material positive impact on the environment and society, taken as a whole, as measured by an independent third-party standard” according to benefitcorp.net. 

“Best interests” clauses

“Best interests” clauses

“Best interests” clauses are designed to mandate constituency statutes in the charter documents of a company.

Board of directors

Board of directors

Board of directors refers to individuals responsible for oversight of the organization’s activities, including oversight, evaluation, appointment and replacement of the chief executive, reviewing the availability of financial resources, approving annual budgets, and reporting on the organization's performance, as determined by the organization’s bylaws.

Constituency statutes

Constituency statutes

Constituency statutes expand the list of stakeholders the board is accountable to beyond the company and its stockholders.

Cooperatives

Cooperatives

Cooperatives are owned by and operated for the benefit of their members and distribute profits and earnings among the members. Depending upon the cooperative, members can be any of the various stakeholders in the business: customers, vendors, growers, employees, etc. 

Founders’ preferred stock

Founders’ preferred stock

Founders’ preferred stock provides a special class of stock that can be used to help preserve an organization’s social mission, for mission anchoring, B Corporation certification, and for branding authenticity, in addition to its original purpose of providing a liquidity vehicle for founders.

“Hockey stick” moment

“Hockey stick” moment

“Hockey stick” moment is the turning point when an organization’s revenues and scale experience sudden and dramatic growth; on a chart, the line connecting the data points resembles a hockey stick, with the "blade" formed from data points shifting diagonally and the "shaft" formed from the horizontal data points.

Internal funding

Internal funding

Internal funding refers to income from products or services sold in any type of organization whether nonprofit and for-profit.

L3C

L3C

L3C refers to a “low profit, limited liability company”. The L3C legislation expands upon what is already permitted for limited liability companies (or LLCs). Unlike a corporation, an LLC is the product of contract law and establishes limited liability, but not separateness for tax purposes. 

Mission anchoring

Mission anchoring

Mission anchoring refers to mechanisms available to uphold a social mission within a for-profit structure. 

Partnerships

Partnerships

Partnerships permit two or more partners to establish and operate a business. Each partner provides funding, assets, and/or labor and receives a share of the profit and losses of the partnership.

Pass-through entities

Pass-through entities

Pass-through entities such as LLCs and L3Cs are often created to avoid the “double taxation” corporations are subject to: 1) a tax on corporate income, and 2) a tax on individual shareholders at the time of any dividend or distribution of profits. 

Pro-bono

Pro-bono

Pro-bono refers to professional work undertaken voluntarily and without payment.

Rules of corporate citizenship

Rules of corporate citizenship

Rules of corporate citizenship are provisions in an organization’s bylaws relating to corporate behavior in areas such as philanthropic giving, living wage, income disparity, environmental stewardship, etc.

Restricted funding

Restricted funding

Restricted funding  (also called restricted income or restricted donations) refer to funds granted to a nonprofit for a particular program or purpose per the wishes of the donor, rather than for the general organizational budget. 

S corporations

S corporations

S corporations provide a form of pass-through tax treatment in which each shareholder is allocated a proportionate amount of the corporation’s income, gains, deductions, losses and credits based on his or her percentage of stock ownership in the corporation. The shareholders then report and pay their share of the corporation’s tax items on their individual tax returns.

Social entrepreneur

Social entrepreneur

Social entrepreneur refers to a person who establishes a social enterprise or venture with the aim of solving social problems or effecting social change.

Social enterprises

Social enterprises

Social enterprises are organizations, either for-profit or nonprofit, that apply commercial strategies to pursue social and environmental goals. In the case of a for-profit social enterprise, this may include maximizing social impact alongside profits for external shareholders, whether as a concession to profitability or in addition to market-rate returns.

Sole proprietorship

Sole proprietorship

Sole proprietorship is a legal form that does not establish any legal status separate from its owner, and when the sole proprietor dies, the enterprise will end.

Social Purpose Corporations

Social Purpose Corporations

Social Purpose Corporation, originally called the Flexible Purpose Corporation in California, is a type of for-profit entity in some U.S. states that enables corporations to pursue a specific social or environmental purpose in addition to profit-maximizing goals.

Super-voting stock

Super-voting stock

Super-voting stock is a class of stock with increased voting rights, say 1,000 votes for each share of super-voting stock, compared to one vote for every normal share of common stock.  

Shoestring budget

Shoestring budget

Shoestring budget refers to meager resources and limited funds. Entrepreneurs working with a shoestring budget often have to be resourceful, creative, and effective at attracting pro-bono services.

Trusts

Trusts

Trusts are typically used as estate planning vehicles that give responsibility for managing and preserving property to a person or entity called the trustee.

Unincorporated associations

Unincorporated associations

Unincorporated associations are formed when people get together and decide to perform some task without filing legal paperwork or establishing a formal legal structure. If their work generates profit, then most states deem them to have formed a partnership. But if their work creates public benefit, say raising funds for a particular cause or conducting a public education campaign, they have formed an unincorporated nonprofit association. 

Unrelated Business Income Tax

Unrelated Business Income Tax

Unrelated Business Income Tax (UBIT) is the tax that must be paid by tax-exempt nonprofit organizations when they engage in commercial activity outside the scope of their exempt purposes. The purpose of UBIT is to prevent nonprofits from gaining an unfair advantage over their corporate counterparts in the marketplace.