was successfully added to your cart.

Cart

For-Benefit Business Versus For-Profit & Nonprofit

By June 28, 2016 April 2nd, 2019 News

 

 

 

for-benefit businessImage Credit: cdn6.fedobe

For-Benefit Business versus For-Profit/Not For-Profit

We’ve been hearing these three terms over and over again, almost every time we read or learn about a new business or organization. Trust me, not many people actually understand the significant differences between For-Benefit business, For-Profit and Not For-Profit. . Before I wrote this article I did not. Clearly, these three terms are easily recognizable, yet a lot of people have no idea what they really mean.

So what’s it with these three different structures of business – For-profit, Non-profit and For-benefit business? Let’s try our best to define and differentiate these terms, as clearly as we can. To start with, for-profit organizations are established to generate income and profits for its owners, shareholders, employees and the business itself. This is their number one goal above all others. On the other hand, non-profits aim to serve environmental or humanitarian needs, channeling all or a portion of its generated revenue for serving people with unmet or under-met needs including food, shelter, education and other social needs. Non-profit organizations may also spend their revenue on other environmental causes including wildlife, deforestation etc.

As the traditional differences between for-profits and nonprofits start blurring every day, a third option has arisen thanks to the profit-minded entrepreneurs who are motivated by social aims, there cometh a third model known as business.

What does for-benefit business really mean?

Now consider these examples.

I-GO, a commercial vehicle-sharing service in Chicago, is structured as a non-profit business. On the other side, Quifang in China, a platform that aids student education, is a for-profit organization by definition.

Neither of these organizations is a rigid for-profit or nonprofit business; but they can be categorized as “for-benefit” companies. In other words, for-benefit companies do generate income, but also give significant priority to their social missions.

Another classic example of a company that employs this hybrid approach is BioCBD Plus™. Apart from delivering natural and high quality CBD products, BioCBD Plus™ also commits to deliver its products to everyone, regardless of their financial circumstances. The company’s scholarship offers and donation programs are its first steps towards entering ‘the world of social cause’. Their prices are low considering the technology and quality of their products, employee lifestyle is ideal, and success is measured in lives positively impacted rather than filling the pockets of their board members.

For the Young Entrepreneurs

For entrepreneurs looking to start new ventures, choosing between the three could be a tough decision to make. While defining your startup as a ‘for-benefit’ company might sound like the coolest thing to do,  you must know all the crucial information related to it before making the final decision.

The Purpose and the Challenges of Establishing a For-Benefit Business

As is the case with non-profit organizations, the board of directors of a ‘for-benefit company’ may have to maintain a set of legal responsibilities to uphold their mission statement. The only difference between the two is that ‘for-benefit companies’ have to ensure that their decisions end up making sufficient profits for their shareholders. In other words, for-benefit companies can make decisions or change their working process/clause to maximize social causes, without effecting shareholder benefits.

for-benefit business, for-profit

Image Credit: colleendilen.com

This can be a complicated role to play and can challenge one’s ability to balance both profit goals and social goals.

As a budding entrepreneur, once you have identified the members who are going to be crucial for the success of your organization and their value proposition, you can then negotiate other roles and responsibilities and the engagement of your shareholders. This helps you ensure that you uphold your social missions while also committing to the overall profit of your shareholders.

Riversimple, a UK-based company that makes vehicles powered by hydrogen fuel cells, allows its shareholders to take part in the governance of the operation and also lets them enjoy a share of its profits. Its open-source establishment enables engineers, manufacturers, and designers all over the world to contribute in developing their vehicles.

Capitalization   

Nonprofit-structured organizations, mostly classified under charity, is free to receive capitalization and funding in numerous ways, including government grants, public donations as well as fundraising.

One of the biggest challenges a for-benefit business has to encounter is to design a model and balance the corporate mission, the financial interests of capital funders, and  the commitments of its shareholder commitments. It is important to maintain this balance at all times, especially during loan contracts, shareholder agreements, and other financial decisions.

For-profit businesses, on the other hand, have no such issues as profits are the ultimate goal of its business operators and shareholders.

Governance and Ownership   

After a transfer of ownership, for-benefit organizations can find it difficult to ensure continuation of social missions. Founders must ensure that subsequent directors, CEOs and investors have the same level of commitment for social missions as they had during the start of the company.

It is widely believed that governance is driven by the owners, but the fact is ownership is a bundle of legal rights, which can be unpacked and repackaged creatively. If you want your social mission to continue even after ownership change, you must design the terms and clauses thoughtfully.

Treatment of Tax and Legal Forms

Both in the case of nonprofit and for-profit organizations, tax designs are not specifically modeled for simultaneously pursuing financial and social missions. For instance, a for-profit form has no provision to ensure commitment of social goals. An organization’s board members could have a hard time prioritizing environmental and social concerns against the benefits of their shareholders.

for-benefit business, entrepreneurship

Image Credit: gse.harvard.edu

A Danish-based pharmaceutical company Novo Nordisk, with a specific mission to fight against Diabetes, found a way to eradicate such problems. It owns a publicly-traded company, governed by a foundation, ensuring its executives can focus on long-term profits while also staying committed to its humanitarian missions.

While for-benefits companies get no dedicated tax benefits, nonprofits are often awarded with exemptions of local and state tax.

Reporting and Performance Measurement

For-benefit structured organizations needs to account its total performance and impact on financial, environmental and social grounds. At present, there are some traditional accounting metrics and systems in place for special reporting. But there is a constant urge for new models and tools for better performance measurements.

Most of the pitfalls faced by for-benefit businesses can be tackled if entrepreneurs adopt the long-term prospective in their crucial structural decisions.

Setting up an Appropriate Ecosystem

Non-profits and for-profits usually exist within well-supported ecosystems with great accounting standards, established laws, financial markets, and customized services. Startup companies, whether structured as nonprofit or for-profit, have a common understanding among investors, accountants, consultants, and lawyers as to who can provide the best solutions.

For-benefit enterprises mostly rely on these existing ecosystems and identify support and resources to tackle their requirements.

Today several entrepreneurs have shown that for-benefit companies can perfectly balance social, environmental and economic performances. And the demand for for-benefit businesses will only expand with time. It seems to be the perfect status to have in the 21st century, to fill in the gaps existing in the other two models. In the process of organizing their companies, for-benefit entrepreneurs tend to be the architects of a new and sustainable capitalism.

 

 

 

 

 

 

 

 

 

 

Comments

comments

James Sol Radina

About James Sol Radina

As CEO and Co-Founder of BioCBD Plus™, James Sol Radina brings years of experience and accumulated expertise from the CBD industry. His interest originated in early 2014, when James embarked on a major filmmaking project to travel and study CBD around the world. Together with a team of filmmakers, he sought out to interview top doctors, scientists, and researchers about CBD, which, at the time, was relatively lesser known, but was starting a buzz in the market. After seeing first-hand the results that CBD had in the patients and experts they filmed, James was “all in!” and his business pursuits began. James started BioCBD Plus™ in 2015, with the goal to fill a niche void that existed in the CBD industry. With the knowledge he gained through his study of CBD, combined with new scientific research, he created the world’s first water-soluble, 100% BioAvailable CBD. The proprietary formula is whole-plant based and more easily absorbable by the body than other CBD products on the market, and the company’s product suite has continued to expand following its demonstrated success. The strength of James’ passion for CBD is matched by his dedication to volunteer service. He incorporated a strong socially responsible model to BioCBD Plus™, which supports The Veterans Discount Program and other programs through donations of CBD products to those who cannot afford them. Since the start of the company, James has also continued to be the inspirational energy behind the company’s beliefs and marketing strategy, which are driven by his commitment to spreading the science-based truth about CBD and bringing the healing benefits of the product to as many people as possible.

don't show

*Organic European Hemp Legally Imported Through FDA Tariff Codes.

FOOD AND DRUG ADMINISTRATION (FDA) DISCLOSURE

This product is not for use by or sale to persons under the age of 18. This product should be used only as directed on the label. It should not be used if you are pregnant or nursing. Consult with a physician before use if you have a serious medical condition or use prescription medications. A Doctor's advice should be sought before using this and any supplemental dietary product. All trademarks and copyrights are property of their respective owners and are not affiliated with nor do they endorse this product. These statements have not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease. Individual weight loss results will vary. By using this site, you agree to follow the Privacy Policy and all Terms & Conditions printed on this site. Void Where Prohibited by Law.

LEAVING OUR WEBSITE DISCLAIMER: IF WE HAVE A RESEARCH LINK TO A WEBSITE WHERE WE SELL PRODUCTS OR HAVE PRODUCT INFORMATION, THE EXIT DISCLAIMER INDICATES THAT WHEN YOU CLICK OK YOU WILL LEAVE THE BIOCBDPLUS.COM WEBSITE AND VISIT AN EXTERNAL LINK. LINKS TO ANY INFORMATIONAL WEBSITES ARE PROVIDED SOLELY AS A SERVICE TO OUR USERS. EXTERNAL LINKS PROVIDE ADDITIONAL INFORMATION THAT MAY BE USEFUL OR INTERESTING AND HAS NO AFFILIATION TO THE PROMOTION, SALE AND DISTRIBUTION OF BIOCBD+ PRODUCTS. THE LINK DOES NOT CONSTITUTE AN ENDORSEMENT OF THESE ORGANIZATIONS AND NONE SHOULD BE INFERRED.

PLEASE VIEW OUR FULL TERMS OF USE AGREEMENT FOR MORE INFORMATION AND THE TERMS AND CONDITIONS GOVERNING YOUR USE OF THIS SITE. Credit Card transactions will appear as Evolved Ayurvedic Discoveries, EAD Labs, or BioCBD