The boundary between the not-for-profit and business sectors: social enterprise and hybrid models

Abstract

It is conventional to think of not-for-profit organizations as inhabiting a sector distinct from the private business sector on one side and the government sector on the other. One of the traditional goals of law in the nonprofit sector has been to distinguish entities in the nonprofit sector from those in the business sector - to define and police the boundary, both so governmental benefits can be provided to not-for-profit entities and so stakeholders can understand which organizations are bound by the nondistribution constraint. Therefore, when there are legal reforms that complicate or alter the boundary, these reforms should be evaluated not only with respect to whether they adequately protect the government's interest in providing benefits to worthy enterprises, but also whether the new reforms promote or detract from the sector's ability to communicate clearly with stakeholders. This chapter (i) introduces the two primary ways that the law of nonprofit organizations attempts to regulate the boundary between the nonprofit and business sectors, (ii) roots commercial activity by nonprofits in the long history of fee-for-service nonprofit organizations that operate very much like for-profit businesses, and (iii) introduces and evaluates a number of new legal forms created for for-profit social enterprises.