legal and financial implications associated with nonprofit wholly-owned social enterprises

 legal and financial implications associated with nonprofit wholly-owned social enterprises

Introduction

From the case study, the efforts of Bruno Conti led to the formation of Independence Matters (IM) in 1996. In line with Conti’s effort, IM’s mission was providing support to the disabled people and also identifying solutions and opportunities for the group. IM’s mission was aimed at helping the disabled live a full life by providing social, health, recreation, and education services. Over the years, IM built a lot of respect as a nonprofit organization for its dedication and services from members of the community. However, IM was highly dependent on fundraising, an aspect that Conti believed was not good for the company. Conti believed that there was a need for IM to find other funding sources to support its operations rather than being reliant on fundraising. With the support of Bob Delaney, Conti was able to convince the board to turn IM into a nonprofit wholly-owned social enterprise leading to the not-for-profit to be renamed to Independence Matters Retrofitters (IMR) due to change in structure and operations. Although IMR managed to attain a lot of success, there were various problems and challenges that IMR experienced, especially during its early years of change and expansion.

Issues, Implications, and Solutions

Nonprofit organizations do not use their surplus revenue for their benefit, nor do they distribute it to the directors. Instead, the firms use the capital gained for the benefit of the community and meeting desired goals. Additionally, not-for-profit firms are either charity or community-driven and making money or profits are usually not their intentions (Maier, Meyer, & Steinbereithner, 2016 ). The organizations use their revenue to solve some of the significant issues affecting their communities. Unlike nonprofit organizations, social enterprises operate differently. Although social enterprises also use their capital to address social problems affecting communities, they are also profit-driven. They use their revenue to support operations rather than relying on donors and supporters. Contrary to nonprofit firms, social enterprises can be viewed as for-profit organizations.

There are various legal and financial implications associated with nonprofit wholly-owned social enterprises. One major financial implication for nonprofit wholly-owned social enterprises is having a charitable purpose. The only way that the concerned organization can qualify for tax-exempt status is having a charitable purpose. Additionally, such a purpose should be a guide to the operation of the organization. The principle of making profits is another financial implication of nonprofit wholly-owned social enterprises. Nonprofit wholly-owned social enterprises do not rely on donors and supporters to raise revenue to support their operations. They, therefore, need to have their sources of revenue, although they also need to be community-driven. In their motive to make money to support their operations, nonprofit wholly-owned social enterprises should also be community-driven, or they can find themselves paying hefty fines. This is one of the legal implications of nonprofit wholly social enterprises. They need to ensure that they try to solve community issues in their aim to raise money to support their operations. Another legal implication of nonprofit wholly-owned social enterprises is that they are not supposed to issue tax receipts for donations. The law prohibits the firms from doing such practices, and they can find themselves in trouble with the law if they ignore the condition. Also, the law prohibits nonprofit wholly-owned social enterprises from using investments associated with the traditional investors, or they risk losing their investments, getting sued, or being shut down completely (Young, 2017).

After IM was changed to IMR, it officially became a nonprofit, wholly social enterprise. However, regardless of the change and new independence, the organizations tried to ensure that it stuck to its original mission. It still dedicated its efforts and operations to helping the physically disabled and identifying problems and offering opportunities to them that could better their lives (Libby & Deitrick, 2016). However, as a nonprofit wholly social enterprise, IMR provided its services at a price that was reasonable to raise some revenue that could help it to support its operations. However, just like many organizations that change their structure and how they operate, IMR can also experience conflicts of interest, especially in independence matters. These conflicts of interest can become evident in the stakeholders who might become suspicious of other proposed implementation that could make the change effective and practical. IMR has already started growing in its market, and the proposed implementation to further support the change might not be well received by stakeholders. These doubts might be caused by a lack of awareness of why further implementations have to initiated to support the change.

The suggested issues that might be faced by IMR should not be taken lightly, and operating structures need to be put in place to assist in minimizing such conflicts. Independence matters, and if further implementation need to be initiated to support the change, there is a need to put up operating structures that can mitigate the conflicts. Effective communication will be crucial if the conflicts of interest are to be avoided. Modes of communication that would allow open communication and collaboration would need to be initiated. There will also be a need to initiate protocols for conflict resolution among stakeholders. Such operating structures would greatly help to reduce conflict of interests that would interfere with the independence of IMR. The structure would allow IMR to communicate relevant information to stakeholders and answer any concerns that they might, which would ultimately build their confidence in the proposed changes. IMR may also enforce measures for conflict management to deal with the problem of conflict of interest among the stakeholders. These measures may include reinforcing accountability and transparency in its processes and operations. As IMR grows and starts to raise its revenue, it needs to also focus on current and future challenges that may interfere with its success and adoption of the change effectively.

Based on the case study, IMR was already experiencing some success after changing from a nonprofit organization to a not-for-profit wholly-owned social enterprise. However, such success can also lead to ethical implications. Attention from stakeholders is one way that can lead to ethical implications as rapid success causes attention. Based on the case study, IMR had already started making huge revenue regardless of its short time operating as a nonprofit wholly-owned social enterprise. The stakeholders may begin to wonder how IMR can raise such revenue and question whether it is concerned with the social problems of the community. As a result, they might be focused more on how the organization operates and how its processes are directed to the social needs of the community. This can result in the lack of recognition of the efforts of IMR to become a successful nonprofit wholly-owned social enterprise. This lack of recognition can lead to stakeholders to stakeholders being unappreciative and also underestimate the rewards and support that be provided to support further growth of IMR.

Conclusion

There is a difference between nonprofit organizations and social enterprises, which is majorly evident in how the two types of organizations operate. There is also a difference between social enterprises and nonprofit wholly-owned social enterprises. Nonprofit wholly-owned social enterprises are required to follow the guidelines of nonprofit organizations, although they are entitled to have their way of raising money to support its operation. However, when nonprofit wholly-owned social enterprises fail to follow the guidelines of nonprofit organizations, they may face legal, financial, and ethical implications that can hamper their success. IMR is an excellent example of a not-for-profit wholly-owned social enterprise that achieved significant success in a short period. However, such success can lead to conflicts of interest with supporters, which can further discourage the implementation of other supportive changes and programs for generating more revenue and solving more social issues of communities. The good news is that there are operating structures that IMR can put in place that can help mitigate the problem of conflict of interest among the stakeholders.