Not For-Profit, Not Non-Profit, But Somewhere In Between

03/18/2010 05:12 am ET | Updated May 25, 2011

When filing the heaping, dreadful amount of paperwork required to register a U.S. business, every entrepreneur must make a choice: for-profit or non-profit?

A for-profit has the goal, as the name suggests, of making profit. A non-profit has a mission that benefits the Greater Good of society, and cannot use funds for anything other than this mission. Two choices: for-profit or non-profit. Easy enough, right?

But what about a for-profit idea (like selling books), from a company that wants to commit itself to giving back to its community (through fighting illiteracy), even at the cost of lower profit margins? Businesses like this are looking beyond the false dichotomy of for-profit or non-profit to explore another business structure, the B Corporation.

BetterWorldBooks, described in the example above, is one of over 240 business to register as a B Corp in the US. Their legal structure is similar to a for-profit; but instead of simply measuring economic performance, they have also committed to meeting social and environmental performance measurements. As the IRS audits the economic portion, the B Lab (a 501c3 itself) audits and rates the added performance measurements of all B Corps.

A quick glance at BetterWorldBook's core values -- which include "read often and help others to do the same" and "reuse, reuse, reuse... then reduce & recycle"-- suggest that this is not a venture easily defined by the mutually exclusive for-profit or non-profit terms. B Corp is allowing entrepreneurs like this to transcend the bifurcation of how we used to classify organizations, and find a comfortable structure somewhere in between.

"While the non-profit and government sectors are critical components of our social fabric and our economy, the private sector represents over 75 percent of GDP," says Andrew Kassoy, co-founder of B-Corp, "thus business is capable of achieving the growth and attracting the investment and talent necessary to address social and environmental problems at scale."

Local governments are beginning to catch on to this idea. The city of Philadelphia recently introduced a new Sustainable Business Tax Credit to promote B Corporations through a $4,000 tax credit. This is a pretty significant development, considering the city's budget crisis. So why do they believe the investment that B Corps make to a city outweighs the tax credit? Here's the rationale:

  • Nine out of 10 B-Corps are locally owned, and they are three times more likely to be owned by minorities or women.
  • Seventy-four percent are affiliated with local charities, and they are 30 times more likely to donate at least 10 percent of their profits to charity.
  • Forty-four percent offer some form of employee ownership.
  • They are twice as likely to offer health insurance and retirement plans.
Other cities such as Yonkers, NY, and Media, PA, are considering following in Philadelphia's footsteps, which means we could be seeing more B Corporations. The team at B Corp projects massive growth of certified organizations in the next decade, giving entrepreneurs a new playground somewhere between for-profit and non-profit.