Hybrid Model for Nonprofits Hits Snags
This article highlights some successes and failures of hybrid models. One model it mentions is L3C model (a mix of LLC and 501c3). Here is a description of an L3C that I found elsewhere:
"The low-profit, limited liability company, or L3C, is a hybrid of a nonprofit and for-profit organization. More specifically, it is a new type of limited liability company (LLC) designed to attract private investments and philanthropic capital in ventures designed to provide a social benefit. Unlike a standard LLC, the L3C has an explicit primary charitable mission and only a secondary profit concern. But unlike a charity, the L3C is free to distribute the profits, after taxes, to owners or investors. "
It seems to me that the L3C is a way to legally formalize hybrids in that the charitable mission can override the most profitable option on the table. In other words, if the most profitable option is not also the option that provides the most social benefit, decisions may default to providing the maximum social benefit and foregoing some profit. As the New York Times article suggests, different people have different feelings on the matter.
The author, in vivid imagery, explains:
“But like Dr. Dolittle’s pushmi-pullyu, the animal that had trouble moving because its two heads could not agree on a single direction, the hybrid model for nonprofits is proving problematic. On occasion, the need to generate returns for investors overwhelms the social mission. In other cases, the business falters altogether and cannot support the nonprofit.”
In the case of failed hybrids, my question is: How can we be sure the hybrid model itself is at fault (as some of the folks in the article claim)? Couldn’t it be that any number of other scenarios which cause non-hybrids to fail are at play?
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