State Attorney General Regulation of Charitable Hyrbid Forms: To Be or Not to Be Charitable

Abstract

One of the most significant challenges for state officials responsible for regulating charities in their state is how to approach their duties with regard to the growing trend of hybrid enterprises and business forms. More specifically, there are questions about whether these new forms are more like charitable trusts and should be treated as such, if they are more like profit- oriented tax paying enterprises and should be so treated, or if they are something so new and different that they require some combination of the two or wholly original approaches. Although understandable to want to regulate these forms as if charitable trusts or otherwise subjected to charitable oversight, it is not the only alternative and may not be the best for society. Other tools are available to protect the public and hold managers, officers, directors, and members/owners accountable. In addition, many of the reasons to impose charitable oversight on exempt organizations do not apply to these hybrid forms. Such oversight is not consistent with historical approaches to charitable activities pursued by non-hybrid, non-exempt forms. A charitable regulatory overlay could inhibit or even prevent charitable hybrids from achieving their charitable objectives, which ultimately should positively serve society and, as such, are desirable outcomes. Finally, legislatures in many states have declared a public policy that favors creation and adoption of these forms, and it is constitutionally incumbent on the executive branch to facilitate rather than impede that declaration, even arguably in those states that have not formally adopted the specific hybrid forms.